FTX Reduce Leverage Limit From 100x to 20x – Regulatory Pressure The Reason?
In a move perhaps designed to avoid an in-coming regulatory storm, the CEO of FTX, one of the top-tier cryptocurrency derivatives exchange, said Sunday that the Hong Kong-based exchange is limiting the amount of margin-trading from 100 times leverage to 20 times.
FTX CEO Sam Bankman-Fried said in a Twitter thread that while he doesn’t agree with the 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.
3) Any margin system needs to have liquidations as a backup, but the goal is to do so rarely.
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.
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.
Today, we're removing high leverage from FTX. The greatest allowable will be 20x.
The recent regulatory actions have been pointed to the direction that stricter regulation of the largely unsupervised cryptocurrency market is on the horizon, and especially focusing on the leverage that traders can take on their positions, gets attention from both crypto critics and regulators.
U.S. Securities and Exchange Commission (SEC) 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 would be released by July 28.
FTX, currently self-regulated, is perhaps hoping to avoid being a target of regulators by showing it’s a responsible player in the field, and by putting in context of what the competition is doing.
Bankman-Fried pointed out in a tweet:
“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.”
The FTX CEO is eyeing the U.S. as his next big target market, so the company has a large incentive to be in good terms with Washington, particularly in light of a recent article at New York Times article highlighting the use of leverage at FTX and other exchanges.
A competing crypto exchange Binance, has lately very much been in the crosshairs of regulators from UK to Japan.
