A popular cryptocurrency exchange announced on Sunday that it was blocking a kind of high-risk trading that has been blamed in part for sharp fluctuations in the value of Bitcoin and Globally casino-like atmosphere on such platforms.
The move by the exchange, FTX, reduces the amount taken by investors from 101 times to 20 times. Leverage increases the chances of traders not only profit but also loss.
“We’re going to be the first step here,” said Sam Bankman-Fried, 29, billionaire founder of the Hong Kong-based platform. Said on Twitter on Sunday. “Today, we are reaping the benefits of FTX. The most valid would be 20x. “
The global crash in May has accelerated after The New York Times published details of dangerous cars offered on FTX and other global exchanges such as Beans and Bitmax, in an article published Friday. That month, બે 20 billion worth of bats were hit on worldwide cryptocurrency exchanges.
Mr. Bankman-Friday said lowering leverage was a step in the direction that the industry is heading, and it has led for a while, “he added.” While we think many arguments have missed the mark of high leverage, we also don’t It doesn’t seem to be an important part of the crypto ecosystem, and in some cases it’s not a healthy part of it. “
Global platforms, such as FTX, allow traders to borrow heavily when betting on price fluctuations – traders do not buy and sell cryptocurrencies, but instead predict where prices will go in the underlying asset. Those bets, known as derivatives, mean that if investors put $ 1000 in money, the exchange extends credit to them to place confidence in the future value of the cryptocurrency worth extend 101,000 on the FTX. Now, with the new cap, it will be a maximum of $ 20,000 in practice.
This type of transaction is not considered to be available to non-commercial investors in the United States, but – at least historically – some of those investors used the workround to trade on the sites.
If the price of cryptocurrency goes against their forecast, and they do not have enough collateral to back up their claims, leverage investors are more susceptible to liquidating their accounts as a result of automatic margin calculations.
The same thing happened in May. Once cryptocurrency prices began to fall based on current events in the market, such as the announcement of a regulatory crackdown by China or the decision by Tesla to suspend bitcoin payments, the exchanges suggested reducing the accounts of extremely high-profit investors before their collateral became insufficient. Cover their position.
“This liquidity is clearly a big factor in the fall in liquid prices,” said Clara Medali, a research lead at Caico, a cryptocurrency market data provider in Paris. “It’s a vicious cycle.”
Mr. Bankman-Friday said on Sunday that only a small percentage of people take advantage of the maximum available leverage. He also argued that the FTX has less liquidity than other exchanges and that he has long sought to “promote responsible trading.”
However, he predicted in an interview last week that some investors would not welcome any move to reduce leverage. “If we get rid of it the customer’s cry will be horrified, and we’ll get a very bad press,” he said. “But it might be the right thing to do.”
Mr. Bankman-Friday also acknowledged that higher profits have created the perception that the exchange is like its encouraged risky trade, although he insisted that this was not the right conclusion.
The world’s largest cryptocurrency exchange offers up to 125 times the profit. Chiangpeng Zhao, a Chinese-Canadian founder and developer of Binans looking for his business origins on Wall Street, said the extreme profit figures were just a “marketing ploy” and most traders do not use it.
Timothy Masade, a former chairman of the Modity Futures Trading Commission, which regulates derivatives in the United States, said he accepted the FTX’s decision and hoped other platforms such as Binans would follow.
He said the change could be prompted by FTX’s venture last week to raise 900 900 million in venture capital, the longest time for a cryptocurrency exchange. High-profit offers on FTX are a more dignified responsibility as Mr. Bankman-Fried looks to expand the global reach of its platform, Mr. Masad said.
“Sam has big visions and this move eliminates a flash point that might be found,” Mr. Masad said. “Get him off the table.”