FTX Cuts Leverage Limit to 20x From 100x as Criticism of Margin Trading in Crypto Grows

25 July 2021

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.

  • 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."
  • 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 > 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 it 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.

UPDATE (July 25, 20:00 UTC): Adds background about FTX and Binance at bottom.

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