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FTX Cuts Leverage Limit to 20x From 100x as Criticism of Margin Trading in Crypto Grows
"It's time, we think, to move on from it," CEO Sam Bankman-Fried said in a tweet.
In a move perhaps designed to help dodge the worst of a coming regulatory storm, the head of a large cryptocurrency derivatives exchange said Sunday he's limiting the amount of margin-trading debt traders can wager from 100 times leverage to 20 times.
STORY CONTINUES BELOW
- In a Twitter thread shown in an abridged fashion below, FTX CEO Sam Bankman-Fried said that while he disputes claims that high leverage is a major cause of volatility in the market and high leverage makes up only a small part of FTX's business, "It's time, we think, to move on from it."
1) An effective margin system is integral to an efficient economic system.
— SBF (@SBF_FTX) July 25, 2021
There are limits to everything, though.
3) Any margin system needs to have liquidations as a backup, but the goal is to do so rarely.
— SBF (@SBF_FTX) July 25, 2021
At FTX, way less than a percent of volume comes from margin calls. This contrasts with a few platforms which are sometimes > 5%, and some which removed data because it looked bad.
7) For us, like liquidations, it's way less than 1% of our volume and positions. It's not a significant part of the exchange.
— SBF (@SBF_FTX) July 25, 2021
It's also not what chiefly contributes to volatility. Liquidations do, one some exchanges (although generally not so much FTX!). But > 20x is small.
9) And so, after lots of back and forth, we're going to be the ones to take the first step here: a step in the direction the industry is headed, and has been headed for a while.
— SBF (@SBF_FTX) July 25, 2021
Today, we're removing high leverage from FTX. The greatest allowable will be 20x.
- In recent months it's been clear that stricter regulation of the largely unsupervised cryptocurrency market is on the horizon and the amount of leverage that traders can wield gets mentioned a lot by crypto critics and regulators alike.
- In particular, the U.S. Securities and Exchange Commission is expected to soon release a new regulatory framework for the sector, following a letter from Sen. Elizabeth Warren (D-Mass.) to SEC Chairman Gary Gensler demanding that one be released by July 28.
- By self-policing itself now, FTX is perhaps hoping to avoid being a target of regulators by showing it's a good and responsible actor in the space, and by throwing shade at some of its competitors:
- "At FTX, way less than a percent of volume comes from margin calls," Bankman-Fried said. "This contrasts with a few platforms which are sometimes [more than] 5%, and some which removed data because it looked bad."
- Bankman-Fried recently said he sees the U.S. as his next big target market, so FTX has a strong incentive to placate Washington, particularly in light of a New York Times article highlighting the use of leverage at FTX and other exchanges.
- One of those exchanges, Binance, has lately very much been in the crosshairs of regulators from Britain to Japan.
Read more: FTX Crypto Exchange Valued at $18B in $900M Funding Round
UPDATE (July 25, 20:00 UTC): Adds background about FTX and Binance in the last few paragraphs.
Kevin Reynolds
Kevin Reynolds was the editor-in-chief at CoinDesk. Prior to joining the company in mid-2020, Reynolds spent 23 years at Bloomberg, where he won two CEO awards for moving the needle for the entire company and established himself as one of the world's leading experts in real-time financial news. In addition to having done almost every job in the newsroom, Reynolds built, scaled and ran products for every asset class, including First Word, a 250-person global news/analysis service for professional clients, as well as Bloomberg's Speed Desk and the training program that all Bloomberg News hires worldwide are required to take. He also turned around several other operations, including the company's flash headlines desk and was instrumental in the turnaround of Bloomberg's BGOV unit. He shares a patent for a content management system he helped design, is a Certified Scrum Master, and a veteran of the U.S. Marine Corps. He owns bitcoin, ether, polygon and solana.
