Binance, the world's largest crypto exchange by trading volume, said it is reducing the maximum leverage users can use to trade futures contracts, a day after derivatives exchange FTX announced the same change, moves perhaps designed to help avoid the worst of a coming regulatory storm.
- The new limit is 20 times leverage, the exchange's founder and CEO Changpeng Zhao said in a tweet Monday, down from 100 times.
- Binance imposed the limit on new users on July 19, and will gradually expand the move to all users, Zhao said.
- FTX CEO Sam Bankman-Fried announced a similar change is taking place on his platform in a tweet posted on Sunday.
- Zhao didn't state the reasoning behind the decision, but said that upcoming changes for existing users were "in the interest of consumer protection."
- A July 23 New York Times article criticized high-leverage trading in crypto as risky. The article implied impending regulatory moves against high leverage margin trading, citing Timothy Massad, a former U.S. Securities and Exchange Commission chairman.
- Binance's Zhao acknowledged that "volatility is amplified by the leverage," according to the New York Times article.
- Bankman-Fried said in his Twitter thread announcing FTX's change that high leverage is a small part of positions, not a big contribution to volatility, and that many arguments against it "miss the mark."
- Exchanges are likely worried about the regulatory screws tightening on margin trading. Huobi suspended the service to Chinese users in June.
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