Is cryptocurrency perpetual contract trading gambling or a financial derivative?
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Is cryptocurrency perpetual contract trading gambling or a financial derivative?
Perpetual contracts are financial derivatives, part of the same family as futures and options.
Navigating Web3 tides with focused insightsBy Deng Xiaoyu
If you've spent a few years in the crypto space, trading perpetual futures is likely nothing new. With characteristics of high leverage, high risk, and high returns, it has become a focal point for global investors. However, in mainland China, such trading activities are currently classified by some judicial authorities as "gambling," linked to the crime of "operating a gambling den," sparking widespread controversy. Meanwhile, globally, regulatory frameworks for cryptocurrency derivatives trading are showing diverse trends.
Deng Xiaoyu, a criminal defense lawyer at ManQin, compares the regulatory landscapes across major jurisdictions during his defense work on perpetual futures cases involving exchanges. In this article, we explore the true nature and underlying logic of perpetual futures to unpack the controversy in mainland China: Is it financial innovation or an online casino? Let's take a closer look.
Is Derivatives Trading a "Cyber Casino"?
In mainland China, some judicial rulings have categorized cryptocurrency perpetual futures trading as "gambling behavior." The specific rationale was previously disclosed in the article "Why Do Commission-Based Crypto Exchange Contract Trades Suspect Operating a Gambling Den?" Many judicial bodies argue that:
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The price fluctuations of cryptocurrencies exhibit irregularity, randomness, and unpredictability.
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Exchanges amplify speculative risks through high leverage, making it highly risky.
Furthermore, according to current policy, "cryptocurrency perpetual futures trading" falls under illegal financial activities. Although defenders may argue that perpetual futures resemble traditional futures contracts, courts maintain there are clear differences—no settlement date, 7x24 trading hours, extremely high leverage, and no physical or cash settlement. They assert that users engaging in this trading model on exchanges are essentially no different from gambling behaviors like "betting big or small, win or lose." Therefore, it can be deemed the crime of "operating a gambling den."
The referenced "current policy" mainly refers to the September 2021 notice issued by the People's Bank of China and nine other departments titled "Notice on Further Preventing and Responding to Risks of Cryptocurrency Trading Speculation," which explicitly states that cryptocurrency-related business activities constitute illegal financial activities, including derivative trading. This provides a basis for judicial practice. But is it hasty to equate complex perpetual futures trading directly with a "casino"? Let’s examine several key issues:
1. Cryptocurrency Classification Remains Ambiguous
Mainland China has yet to establish a clear legal framework defining the nature of cryptocurrencies. Relevant regulations such as the "Notice on Preventing Bitcoin Risks," the "Announcement on Preventing Risks of Token Issuance Financing," and the 2021 notice emphasize only that virtual currencies lack legal tender status and cannot circulate as money. But whether they are commodities, securities, or something else remains unclassified.
In contrast, international regulatory frameworks are more detailed. The U.S. Commodity Futures Trading Commission (CFTC) has long classified Bitcoin and Ethereum as "commodities," regulating derivatives under futures rules. The European Union’s Markets in Crypto-Assets Regulation (MiCA) goes further, treating crypto assets and their derivatives as financial products. These clear rules leave room for innovation, while mainland China’s ambiguity may hinder industry development and diverge from global trends.
2. What Really Separates Perpetual Futures From Traditional Futures?
Perpetual futures are unique crypto derivatives evolved from traditional futures, sharing strong functional similarities: both allow leveraged bets on asset price movements, settling price differences upon closing or expiration. In essence, they're just the "crypto version" of futures. Traditional futures let traders use leverage to bet on price direction; perpetual futures do much the same, except they extend trading beyond T+1 into continuous 7x24 markets.
Does high leverage equal gambling? That logic doesn’t hold. Leverage is commonplace in financial markets. Perpetual futures simply bring traditional futures mechanics into crypto—they’re not akin to blindly betting chips at a card table. Labeling them as "gambling tools" overlooks their underlying financial logic.
3. Are Price Movements Truly Random?
Some argue that cryptocurrency prices are "irregular, random, and accidental," using this as justification for classifying them as gambling. This view sharply conflicts with global market analysis. In reality, mainstream cryptos like Bitcoin are no longer isolated to niche communities—they’re increasingly tied to global financial markets. Prices are driven by multiple factors including macroeconomic conditions, supply-demand dynamics, technological developments, and geopolitical events.
In January last year, Nasdaq published an article titled "Understanding the Correlation Between Bitcoin and the Nasdaq 100 Index," noting a long-term correlation coefficient of 0.805 between Bitcoin and the Nasdaq index. Federal Reserve rate hikes, institutional ETF purchases, and geopolitical tensions all influence Bitcoin prices. Traders in perpetual futures rely on technical analysis, fundamental research, and risk management strategies—not blind guessing. Calling price volatility "purely random" fails to recognize the maturity and complexity of today’s crypto markets.
Global Regulatory Landscape: The Path Toward Legitimizing Crypto Derivatives
While regulators in mainland China view perpetual futures as gambling, most other jurisdictions disagree. This isn't merely about differing laws—it reflects fundamentally different views on the nature of digital assets.
The EU, U.S., Hong Kong, Dubai, Singapore, and the UK each have distinct approaches, but share a consensus: perpetual futures are financial derivatives, not gambling. Legality hinges on compliance—not on leverage levels or price volatility.
European Union: A "Compliance Passport" for Financial Derivatives
The EU introduced the Markets in Crypto-Assets Regulation (MiCA) in 2023, setting a clear tone: perpetual futures are "crypto asset derivatives," treated the same as stock or bond derivatives and regulated under the Markets in Financial Instruments Directive (MiFID II). Want to operate? You need a MiCA license, sufficient capital, robust risk controls, and transparent trading.
*Original text from MiCA
This translates to: "Certain crypto-assets, particularly those qualifying as financial instruments under Directive 2014/65/EU of the European Parliament and Council, fall within the scope of existing EU legislation on financial services. Thus, a full set of EU rules already applies to issuers of such crypto-assets and companies engaged in related activities."
MiCA clearly states that crypto assets and services meeting the definition of financial instruments under MiFID II are not governed by MiCA itself but fall under Directive 2014/65/EU—the Markets in Financial Instruments Directive (MiFID II)—which defines financial instruments. The EU framework treats crypto derivatives (once recognized as financial instruments) equally with traditional derivatives.
Though complex in wording, the message is clear: the EU does not label perpetual futures as "gambling" due to high leverage. Instead, it grants them formal recognition as "financial instruments." This balanced approach encourages innovation without sacrificing oversight—an exemplary model of regulatory equilibrium.
United States: Divided Oversight, Clear Roles
The U.S. stance on perpetual futures is straightforward: they are derivatives, no different from futures or swaps. Bitcoin and Ethereum are classified as "commodities" by the CFTC, so perpetual futures based on them fall under CFTC jurisdiction and follow the Commodity Exchange Act. If the underlying asset is deemed a "security," then SEC oversight applies.
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Commodity Futures Trading Commission (CFTC): Regulates derivatives of cryptocurrencies classified as "commodities" (e.g., Bitcoin, Ethereum). Perpetual futures based on these are treated as commodity derivatives, functionally identical to traditional futures or options. Typically categorized as "swaps" or "futures," subject to the Commodity Exchange Act (CEA).
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Securities and Exchange Commission (SEC): If a cryptocurrency is classified as a "security," its derivatives—including perpetual futures—are regulated by the SEC under securities laws.
In 2021, the CFTC fined BitMEX $100 million for offering high-leverage perpetual futures to U.S. users without registration. A senior CFTC enforcement official stated in the case: "...the registration requirements and core consumer protections Congress established for our traditional derivatives market apply equally in the growing digital asset market." This means: "The rules governing traditional derivatives markets apply equally to the crypto market." This statement underscores that the financial nature of perpetual futures is unquestioned in the U.S.
Dubai: Balancing Innovation and Compliance
Securities and Commodities Authority (SCA) regulates virtual assets by reference to securities
The SCA forms the foundation of the UAE’s regulatory framework for investment-related crypto activities. It defines virtual assets as digital representations of value used for investment purposes, excluding fiat currency, securities, and other digital currencies.
The SCA has progressively refined its regulatory scope. In November 2020, it released the "Virtual Asset Activities Regulation" at the federal level, covering ICOs, exchanges, market platforms, custody services, and derivatives. Key requirements include:
(1) Virtual asset service providers must be registered locally in the UAE or within a financial free zone;
(2) Virtual asset service providers must obtain approval and licensing from the SCA.
Dubai Virtual Assets Regulatory Authority (VARA)
Dubai’s VARA released the "Virtual Assets and Related Activities Regulation" in 2023, directly classifying perpetual futures as "virtual asset derivatives," regulated similarly to forex and equity derivatives. Want to participate? You’ll need a VARA exchange license, with mandatory risk disclosures and investor protections.
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Perpetual futures are categorized as virtual asset derivatives, similar to foreign exchange and stock derivatives in traditional financial markets.
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Exchanges must obtain a VASP license from VARA for exchange services, which includes VA derivatives.
For example, Deribit’s Dubai entity obtained a VARA trading services license last year, covering spot and derivatives. Dubai’s approach strikes a smart balance—welcoming innovation while preventing unregulated "wild west" growth.
Singapore: Strict准入
Singapore maintains an open yet strict stance toward cryptocurrencies. The Monetary Authority of Singapore (MAS) categorizes tokens into utility, security, and payment types. Perpetual futures are overseen by "licensed exchanges." Margin trading for crypto derivatives on licensed exchanges is tightly regulated. Entities wishing to offer contract trading must become financial exchanges approved by MAS to operate crypto derivatives and apply for DPT licenses.
As per the MAS website, only four licensed exchanges currently exist in Singapore: SGX Derivatives, Asia Pacific Exchange (APEX), ICE Futures, among others—all permitted to trade crypto derivatives. Strict准入 ensures market order and investor protection.
Interestingly, traditional exchanges in Singapore are now piloting crypto perpetual futures for institutional and accredited investors. What does this mean? To Singapore, perpetual futures are legitimate financial derivatives, not speculative toys. This also signals traditional exchanges are accelerating their digital asset strategies to meet rising institutional demand for crypto exposure.
United Kingdom: Retail Investors Banned, Professionals Welcome
Now consider the UK. Since 2021, the Financial Conduct Authority (FCA) has banned retail investors from accessing crypto derivatives, including perpetual futures, while allowing professional investors to participate. The FCA labels them "high-risk financial instruments" and requires exchanges to register and comply with regulations. Even in this tightly controlled environment, perpetual futures are still recognized as financial derivatives. Legality depends not on the instrument being "gambling," but on whether the user is a "qualified participant."
Hong Kong: Cautiously Exploring Derivatives
Hong Kong launched its "Licensing Regime for Virtual Asset Trading Platforms" in June 2023, soon after allowing retail investment in cryptocurrencies—though derivatives remain under review. According to recent media reports, Leung Hon-ching, Head of Financial Services and FinTech at InvestHK, said although Hong Kong currently only permits spot trading, the government has begun studying regulation for derivatives. HashKey’s COO has already indicated that once policies loosen, they will apply for a license.
Hong Kong’s strategy is clever: secure the spot market first, then cautiously expand into derivatives—neither rushing nor falling behind. The future classification of perpetual futures in Hong Kong will likely align with financial instruments, not gambling.
ManQin Lawyer Summary
We observe a consistent global regulatory trend: perpetual futures are financial derivatives, part of the same family as futures and options. The EU issues them a "compliance passport," the U.S. applies traditional derivatives rules, while Hong Kong, Dubai, and Singapore encourage innovation with safeguards. The UK adopts tiered access based on investor sophistication, using licenses, risk warnings, and leverage caps to maintain orderly markets.
Mainland China stands apart. Some courts labeling perpetual futures as "gambling" may overlook their financial attributes. Claiming prices are "patternless" contradicts global market data—Bitcoin prices are already closely linked to the Nasdaq and Fed policy. Such blanket regulation may stifle fintech innovation in China, appearing conservative compared to global trends.
ManQin’s criminal lawyers write this piece to urge stakeholders to learn from global experiences and consider Hong Kong’s evolving policies when re-evaluating the nature of perpetual futures—perhaps adopting the EU’s MiCA-style tiered regulation, treating perpetual futures as financial instruments; or following the U.S. CFTC’s commodity derivatives model, setting leverage limits and strengthening investor protection. Additionally, we aim to clarify misconceptions: while operating exchanges offering perpetual futures without authorization should indeed be prohibited under strict Chinese regulation, the proper legal characterization should be illegal business operations, not gambling. Conversely, if perpetual futures were considered gambling, then tens of thousands of contract traders would face administrative penalties for gambling participation—an outcome clearly detrimental to social governance.
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