1. Introduction
In recent years, the cryptocurrency market has developed rapidly, attracting the attention of global investors. However, as the cryptocurrency market continues to expand, the risks it brings are gradually becoming apparent. In order to maintain financial stability and protect investors' rights, countries around the world have strengthened their regulation of cryptocurrencies. At the same time, for ordinary investors, in cryptocurrency trading, spot and contract trading each have their characteristics, and choosing which trading method to adopt becomes a key issue. This article will delve into the latest dynamics of global cryptocurrency policies and provide ordinary investors with suggestions on choosing between spot and contract trading methods and strategies to respond to regulatory changes.
2. Current status of global cryptocurrency regulation
1. Overview of regulatory policies in major countries and regions
United States: The regulatory attitude towards cryptocurrencies in the United States is complex and continuously evolving. On one hand, existing regulatory laws strictly monitor violations of securities laws by cryptocurrency issuers. For example, from 2018 to 2023, the U.S. Securities and Exchange Commission (SEC) rejected more than 20 applications for spot Bitcoin ETFs, yet in January 2024, it approved the listing of a Bitcoin spot ETF. However, the SEC chairman emphasized that this does not imply recognition of Bitcoin products, and investors should remain cautious about related risks. On the other hand, the Trump administration referred to Bitcoin as 'digital gold' and signed an executive order in early 2025 to establish a 'strategic Bitcoin reserve,' supporting dollar stablecoins and reinforcing the dollar's valuation position in global cryptocurrency trading.
European Union: The EU has taken an important step in cryptocurrency regulation by approving the Markets in Crypto-Assets Regulation (MiCA), which is the world's first comprehensive and clear regulatory framework for virtual assets, scheduled to take effect by the end of 2024. This regulation categorizes crypto assets into cryptocurrencies, asset-referenced tokens (like stablecoins), and electronic money tokens, setting differentiated regulatory rules and imposing strict requirements on issuer admission licenses and compliance thresholds for service providers.
UK: Accelerating the pace of virtual asset legislation, enacting the Financial Services and Markets Bill, which brings crypto assets under the regulatory framework of the bill, strengthening the regulation and management of the cryptocurrency market.
Singapore: Issued the Stablecoin Regulatory Framework, clarifying the scope of regulated stablecoins and the conditions for issuers, aiming to ensure the stability of the stablecoin market and the rights of investors.
Japan: Formulated the Funds Settlement Act, restricting issuers of stablecoins to licensed banks, registered transfer agents, and trust companies, controlling the risks of stablecoin issuance from the source.
Hong Kong: Actively exploring licensing management for crypto assets, categorizing virtual assets into two types: securitized financial assets and non-securitized financial assets for regulation, implementing a unique 'dual license' system for virtual asset trading platform operators. At the same time, it requires large financial institutions to include cryptocurrency exchanges in their daily customer supervision scope.
2. Main directions and goals of regulatory policies
Investor protection: Given the high volatility and complexity of the cryptocurrency market, regulatory agencies will strengthen investor protection as an important goal. They require cryptocurrency-related projects to conduct full disclosure of information, including the operational mechanism, risk characteristics, financial status, etc., so that investors can make informed decisions. At the same time, misleading marketing is prohibited, and complaint and dispute resolution mechanisms are established to ensure that investors have corresponding remedies when their rights are violated.
Anti-money laundering and counter-terrorism financing: Anti-money laundering and combating terrorist financing are the bottom line of global regulation. The anonymity of cryptocurrency and the convenience of cross-border transactions make it easy for criminals to use it for money laundering and terrorist financing activities. Regulatory agencies require cryptocurrency service providers to strictly comply with anti-money laundering and counter-terrorism financing (AML/CFT) compliance requirements, establishing mechanisms for customer identity verification, transaction monitoring, etc., to block illegal fund flows.
Maintaining financial stability: With the growth of the cryptocurrency market and its deepening ties with the traditional financial system, its potential spillover effects on overall financial stability have attracted significant attention from regulators. For example, imposing additional requirements on large-scale stablecoins, strengthening the monitoring and assessment of the links between the crypto ecosystem and traditional finance, and establishing risk prevention and resolution frameworks to prevent fluctuations in the cryptocurrency market from triggering systemic financial risks.
Regulating market order: By setting market access thresholds, strengthening the regulation of trading platforms and service providers, and other measures, regulating trading behavior in the cryptocurrency market, preventing market manipulation, fraud, and other improper behaviors, and creating a fair, just, and transparent market environment.
3. Analysis of spot trading and contract trading
1. Spot trading
Trading Mechanism: Spot trading refers to the direct exchange of assets and cash between buyers and sellers, with transactions completed instantly. For example, in purchasing Bitcoin spot, investors immediately obtain ownership of Bitcoin after paying the corresponding cash. Common trading models include immediate execution mode, where the trading system immediately executes trades at the best current market price after the investor places an order, allowing for rapid transactions and capturing market opportunities timely, making it simple and intuitive, suitable for novice investors; limit trading mode, where investors set a desired buying or selling price in advance, and the transaction only executes when the market price reaches that set price, helping investors better control trading costs and returns, but if the market price does not reach the set price, the transaction may not execute, thus missing investment opportunities; market maker mode, where market makers provide buy and sell quotes, and investors trade according to the market maker's quotes, providing higher market liquidity, but market makers may charge a spread, increasing trading costs; matched trading mode, where the trading system matches and facilitates transactions based on the quotes from both buyers and sellers, forming relatively fair prices and high trading transparency, but during quiet trading times, there may be difficulties in executing trades.
Risk characteristics: The risks of spot trading are relatively intuitive. Its price volatility risk is closely related to the market conditions of the cryptocurrency itself. If investors buy spot and the cryptocurrency price drops, they will face the risk of asset value depreciation. However, since spot trading is fully funded, there is no additional risk from leverage; as long as investors do not sell, the asset still has the potential for value recovery. At the same time, spot trading also carries market manipulation risks, as some large institutions or investors may influence market prices through substantial buying and selling, misleading other investors.
Suitable investor types: Spot trading is suitable for those with lower risk tolerance, confidence in the long-term value of cryptocurrencies, and not pursuing short-term high profits. These investors focus more on the long-term preservation and appreciation of assets, willing to hold cryptocurrencies for the long term, waiting for their value to grow with market development. For example, some investors who are optimistic about the future development prospects of blockchain technology believe that cryptocurrencies like Bitcoin will play an important role in the future economic system and would choose to buy and hold through spot trading.
2. Contract trading
Trading Mechanism: Contract trading involves trading the contract itself rather than the actual asset. Investors can trade by predicting the direction of price movements of cryptocurrencies, and as long as their predictions are correct, they have the opportunity to profit, regardless of whether prices go up or down. Common types of contract trading include futures contracts and contracts for difference (CFD). The biggest feature of contract trading is that it allows investors to use leverage, enabling them to control large trading volumes with relatively small funds. For example, investors may only need to pay a certain percentage of the margin to trade amounts several times or even dozens of times the margin amount. This leverage mechanism amplifies the potential profits of investors but also significantly increases the risks.
Risk characteristics: Due to the presence of leverage, the risks of contract trading are significantly magnified. Even small fluctuations in cryptocurrency prices can lead to substantial losses in investors' margins or even liquidation due to leverage effects. For instance, if an investor uses 10x leverage for trading, a 10% opposite price movement in cryptocurrency could wipe out the investor's entire principal. Additionally, contract trading also carries counterparty risks; if a trading platform has issues or engages in dishonest practices, investors may face risks of being unable to trade normally or withdraw funds. Market manipulation is also relatively common in the contract trading market, where some criminals may manipulate prices to force investors into liquidation, thereby profiting.
Suitable investor types: Contract trading is suitable for those with higher risk tolerance, rich trading experience, and professional knowledge, as well as strong analytical and judgment skills regarding market conditions. These investors can skillfully use technical analysis and fundamental analysis methods to accurately grasp short-term market volatility trends and obtain high profits in the short term through contract trading. However, for ordinary investors, the risks of contract trading are too high, and participation should be approached with caution.
4. Suggestions for ordinary investors on choosing trading methods
1. Consider personal risk tolerance
Risk tolerance is the primary consideration for investors when choosing a trading method. If an investor's risk tolerance is low and unable to bear significant capital losses, then spot trading is more appropriate. Because spot trading has no leverage, capital losses will not exceed the invested principal; even if market conditions are unfavorable, investors still have the opportunity to wait for the market to rebound. Conversely, if an investor has a high risk tolerance, is willing to take on greater risks for higher returns, and has strong psychological resilience to market fluctuations, they may participate in contract trading appropriately, provided they fully understand the risks of contract trading. However, it is important to note that even if risk tolerance is high, it does not mean blind high-risk investments are permissible; reasonable control of investment ratios and risk exposure is still necessary.
2. Investment experience and level of expertise
Investment experience and level of expertise also play a key role in the choice of trading methods. For ordinary investors new to the cryptocurrency market, lacking trading experience and a deep understanding of the market, spot trading is a better starting point. Spot trading is relatively simple and easy to understand, and by learning basic market knowledge and price analysis methods, investors can gradually become familiar with market rules. As investment experience accumulates and expertise improves, investors can further understand the mechanisms and strategies of contract trading. Investors with rich trading experience and professional knowledge can better analyze market conditions and seize trading opportunities, making them more likely to obtain profits in contract trading. However, even so, continuous learning and tracking of market changes are necessary due to the high complexity and uncertainty of the cryptocurrency market.
3. Investment goals and time planning
The investment goals and time planning of investors also affect the choice of trading methods. If an investor's investment goal is long-term asset appreciation, such as for future retirement, children's education, etc., and has a longer investment time span, then a combination of spot trading and long-term investment strategy is more suitable. By holding quality cryptocurrencies for the long term, investors can share in the benefits brought by the long-term development of the cryptocurrency market. Conversely, if investors seek short-term speculative gains, hoping to obtain high profits through market fluctuations in a short time, and have sufficient time and energy to monitor market dynamics, contract trading may better meet their needs. However, short-term speculative trading requires investors to constantly pay attention to market conditions and promptly adjust trading strategies, which demands a high level of time and energy from investors.
5. Strategies to respond to regulatory changes
1. Compliant trading, choose legitimate and compliant trading platforms
With the strengthening of regulations, compliant trading has become a principle that investors must follow. Investors should choose trading platforms that are registered with regulatory agencies and have obtained legitimate licenses for trading. These platforms are usually subject to strict supervision by regulatory agencies, possessing more comprehensive systems and measures in areas such as customer fund protection, information disclosure, and anti-money laundering, which can reduce trading risks for investors. For example, in Hong Kong, virtual asset trading platform operators with relevant licenses have higher compliance standards. When choosing a platform, investors should carefully check the platform's qualification information and understand whether it meets regulatory requirements to avoid choosing illegal platforms that are not recognized by regulators, in order to prevent losses of funds and legal risks.
2. Strengthening the learning and understanding of regulatory policies
Investors need to closely monitor the changes in global cryptocurrency regulatory policies and strengthen their learning and understanding of regulatory policies. Adjustments in regulatory policies often have significant impacts on the cryptocurrency market, and understanding policy dynamics helps investors adjust their investment strategies in a timely manner. For example, when a country or region introduces new cryptocurrency tax policies, it may affect investors' trading costs and expected returns; when regulators strengthen the regulation of stablecoins, the supply and demand relationships and price fluctuations in the stablecoin market may change. Investors can obtain the latest regulatory policy information by following the official websites of regulatory agencies, news media reports, and professional financial information platforms, and analyze and make decisions based on their own investment situations.
3. Diversify investments to reduce risks from single assets and markets
In the face of uncertainties brought by regulatory changes, diversification is an effective strategy to reduce risk. Investors should not concentrate all funds on one cryptocurrency or one trading market but diversify investments among different types of cryptocurrencies, such as mainstream cryptocurrencies like Bitcoin and Ethereum, as well as some emerging cryptocurrencies with potential. Additionally, investors can consider investing in legally compliant trading markets in different countries and regions to reduce the risk of significant asset depreciation due to regulatory shocks in a specific market. Furthermore, investors can allocate some funds to traditional financial assets such as stocks, bonds, and funds to build a diversified investment portfolio and improve the overall stability of their assets.
6. Conclusion
A global regulatory storm is sweeping through the cryptocurrency market, with increasingly strict and improved regulatory policies in various countries and regions, aiming to protect investors' rights, maintain financial stability, and regulate market order. In cryptocurrency trading, spot trading and contract trading have their advantages and disadvantages, and ordinary investors should carefully choose the trading method that suits them based on their risk tolerance, investment experience and expertise, as well as investment goals and time planning. At the same time, in the face of regulatory changes, investors should adhere to the principle of compliant trading, choose legitimate and compliant trading platforms, strengthen their learning and understanding of regulatory policies, and reduce risks through diversification. Only in this way can investors better cope with regulatory challenges in the cryptocurrency market and achieve reasonable asset allocation and stable appreciation.
