In 2008, the Bitcoin white paper was published by unknown individuals and implemented in its initial release in 2009. In this period, we also see the birth of the binary options industry. The infamous Banc de Binary was founded at the time and lasted until 2017 before it had to close due to legal and regulatory issues. As of 2017, Binary Options were banned in most regulatory regimes due to their susceptibility to fraud. After the crypto debacles of 2022, does the Bitcoin industry face a similar fate? Here are our thoughts on the matter.
Gamification Of Online Trading
Binary bitcoins evolved from online gambling. In its very essence, binary options were simply a gamification of online trading. The “traders” only had to choose between the binary options “up” or “down” on prices and won or lost the bet. In the process, the price prediction period was set in the shortest term, sometimes only the next 30 seconds. This is about the same time as it takes the ball at the roulette table to settle on a number. This was actually an innovation that opened up a whole new market segment – including inexperienced investors. It was indeed an innovation.
The Regulatory Disaster
The problem was that binary options were not regulated at all in the early years and were sometimes regulated as “gambling”, as in the UK or Cyprus. CySEC only qualified binary options as a financial instrument in 2012, but efficient regulation did not really exist after that. It turned out that Binary Options were extremely susceptible to manipulation and fraud. This is also because there was actually no real trading in binary options. Most trading systems only provided for internal order matching. In addition, administrators were able to change the parameters of trading and client accounts.
Biggest Fraud Ever
Because of the lack of or inefficient regulation and the ease of manipulation, a gigantic fraud environment was created. More than 90% of binary options providers were scammers, as we now know. Regulators never found a key to regulating binary options which eventually resulted in their banning in most regulatory regimes. It’s no surprise that after that, many scammers focused on the crypto space, which is similarly susceptible to manipulation and fraud.
Lessons For Crypto
A narrative about the history of cryptos from a trader’s perspective would probably sound similar to the one about binary options. Cryptos are without a doubt a disruptive innovation. Unfortunately for scammers, too. And as with binary options, regulators have not found a recipe for regulation more than 13 years after their launch. The events of 2022 show this very clearly: the collapse of Terra-Luna and the resulting bankruptcies of Three Arrows Capital (3AC) crypto hedge fund and crypto lender Celsius Network or Voyager Digital (to name a few). Now we see the collapse and bankruptcy of FTX. In total, millions of customers were probably harmed.
If the regulators do not find a solution for a global, multi-jurisdictional regulation, then the ban of large parts of cryptocurrencies could possibly threaten. This does not seem as unlikely to us as it may sound.
Your Opinion
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