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- Binance announces reducing its maximum leverage.
- Binance futures contract started limiting new users to a maximum of 20 times leverage.
- FTX had a similar change announced yesterday.
Today, the world’s largest crypto exchange by trading volume Binance announces reducing its maximum leverage on Twitter. The announcement explains that its futures contract started limiting new users to a maximum of 20 times leverage from 100 times.
.@binance futures started limiting new users to max 20x leverage last Monday, Jul 19th, 7 days ago. (We didn’t want to make this a thingy).
In the interest of Consumer Protection, we will apply this to existing users progressively over the next few weeks.
Stay #SAFU. 🙏
— CZ 🔶 Binance (@cz_binance) July 26, 2021
More so, Binance CEO, Changpeng Zhao, clarified that the limit on new users started 7 days ago (July 19), and will eventually expand the move to all users. It should be noted, FTX had a similar change announced yesterday. Sam Bankman-Fried, CEO of FTX said in a Twitter thread saying “It’s time, we think, to move on from it”.
1) An effective margin system is integral to an efficient economic system.
There are limits to everything, though.
— SBF (@SBF_Alameda) July 25, 2021
Meanwhile, Zhao did not explain the reasoning behind his decision. He just mentioned that “We didn’t want to make this a thingy”. However, he mentioned that the changes were in the interest of consumer protection.
More so, an article from New York Times criticized high leverage trading in crypto and called it risky. Here, the article implied impending regulatory moves against high leverage margin trading. The articles cited Timothy Massad, a former US SEC Chairman. Hence, CZ acknowledged that ‘volatility is amplified by the leverage’.
On another note, Bankman-Fried said in his Twitter thread, that high leverage is a small part of positions, not a big contribution to volatility. And that many arguments against it ‘miss the mark’.
With that said, Exchanges are likely worried about the regulatory news being strict on margin trading. An example of this is the Huobi Exchange when it suspended the service to Chinese users last month.