European Securities and Markets Authority has warned that crypto derivatives marketed as “perpetual futures” or “perpetual contracts” are likely to fall within the European Union’s contracts for differences framework, subjecting them to strict investor protection rules.
In a notice on Tuesday, ESMA said leveraged products tied to cryptocurrencies such as Bitcoin or Ether may meet the definition of CFDs and therefore be subject to product intervention measures including leverage caps, mandatory risk warnings, margin close-out requirements and negative balance protection.
“Where these derivatives meet the definition of a CFD, they are subject to the applicable product intervention requirements, including leverage limits, a mandatory risk warning, a margin close-out and negative balance protection, and the prohibition of monetary and non-monetary benefits,”
Said ESMA.
The regulator, which oversees compliance under the Markets in Crypto-Assets framework, cautioned firms to identify and manage potential conflicts of interest when offering such products to retail clients.
Bill Hughes, senior counsel at Consensys, said the statement shows European authorities are closely monitoring leveraged crypto derivatives and warned that rebranding products as perpetual futures would not shield them from CFD restrictions if their characteristics match the definition.
The notice coincided with Kraken announcing new perpetual futures tracking tokenised equity indices and gold-backed exchange-traded funds for clients outside the United States, though a spokesperson said the products are not available to EU clients at launch.
At the time of reporting, Bitcoin price was $65,564.54.