Binance, the world’s largest crypto exchange by trading volume, lowers the maximum leverage customers may use to buy futures contracts. Subsequently, this comes only a day after FTX announced a similar adjustment.
Binance Lowering the Limit
The new limit is 20 times leverage, down from 100 times, according to Changpeng Zhao, the exchange’s founder and CEO.
“Binance futures started limiting new users to max 20x leverage last Monday, Jul 19th, seven days ago. (We didn’t want to make this a thingy).”
According to Zhao, on July 19, Binance implemented a new user limit, which would progressively extend to all users. However, Zhao did not explain why they made the decision. However, he did say that forthcoming adjustments for existing customers will be “in the interest of consumer protection.”
The New York Times Report
On July 23, New York Times condemned high leverage crypto trading as dangerous. The report cited Timothy Massad, a former chairman of the Securities and Exchange Commission, as a source for anticipated regulatory action against high leverage margin trading. According to the New York Times report, Zhao admitted that “volatility is magnified by leverage.”
FTX Doing A Similar Shift
In a tweet on Sunday, FTX CEO Sam Bankman-Fried revealed that a similar shift is taking place on his platform.
High leverage is a small proportion of positions, not a major contributor to volatility, Fried wrote in his Twitter thread. He wrote this while announcing FTX’s move and many arguments against it “miss the target.”
Additionally, exchanges are presumably concerned about regulatory restrictions on margin trading tightening. In June, Huobi shut down the service for Chinese customers.