Crypto platforms offer leveraged US stock bets as regulators play catch-up

Retail traders in emerging markets can now wager on US equities through cryptocurrency exchanges offering up to 25 times leverage on stock derivatives, a practice that remains largely outside the reach of securities regulators.

The shift gained visibility this week when Seychelles-based exchange Bitget said its stock-linked futures had crossed $5 billion in cumulative trading volume barely weeks after launch.

The platform lets users trade synthetic versions of more than 30 US stocks using the USDT stablecoin, settling profits and losses in cryptocurrency rather than dollars.

"Stock futures give users the flexibility of crypto with exposure to the companies they follow every day," said Gracy Chen, Bitget chief executive.

The products are derivatives rather than actual shares. Traders receive no dividends or voting rights.

They gain or lose money based on price movements of underlying stocks without owning actual equity.

Popular tickers include Apple, Tesla, Nvidia and MicroStrategy, names that dominate online finance conversations.

Regulatory gap widens

The rapid growth exposes a widening gap between financial innovation and oversight.

In Kenya, where an estimated six million people use cryptocurrency, regulators have yet to license a single virtual asset service provider despite passing comprehensive legislation last month.

The Virtual Asset Service Providers Act (VASPs Act) took effect in  November, designating the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) as joint regulators. The National Treasury is still drafting implementing rules.

"Consequently, the licensing of VASPs will commence upon issuance of these regulations," the regulators said in a joint statement this week.

The delay leaves Kenyan traders using offshore platforms without local consumer protections. Kenya ranks among the top five countries globally for peer-to-peer Bitcoin transactions, according to the 2024 Chainalysis Global Crypto Adoption Index.

High leverage, high stakes

The products carry substantial risk. Bitget offers leverage up to 25 times on stock futures, meaning a 4 per cent adverse price move can wipe out a trader’s entire position.

In November alone, more than $2 billion in leveraged cryptocurrency positions were liquidated globally when Bitcoin tumbled from its October record high above $126,000 to below $90,000, triggering cascading losses across platforms.

The United Kingdom banned crypto derivatives sales to retail consumers in 2021, citing extreme volatility and product complexity. The Financial Conduct Authority (FCA) argued that many retail traders lacked the expertise to assess risks properly.

The move highlights the regulatory vacuum that persists in many other jurisdictions, including most African markets.

Stablecoins as gateway

The expansion reflects broader adoption of US dollar pegged stablecoins across Africa, where traders use them to hedge against local currency depreciation and to conduct cross-border transactions.

Sam Kim, co-founder of Nairobi-based blockchain firm GoChapaa, noted that stablecoins have become popular as a proxy for the greenback.

"The industry is simply too big for the government to ignore," Kim observed.

Ghana is expected to finalise its own crypto regulatory framework by December, while South Africa and Nigeria already require formal licences for virtual asset service providers.

What traders should know

Stock-linked perpetual futures on crypto platforms differ from traditional brokerage accounts. They operate on cryptocurrency venue schedules rather than US market hours, though Bitget suspends trading during American public holidays. Contracts are margined and settled in USDT.

The underlying index tracks tokenised stock assets rather than actual equities. Traders have no recourse to securities regulators if disputes arise.