- Binance recently followed FTX in dialling back their leverage trading offer from 125x to 20x
- Leverage trading remains a thorny issue in crypto, with amateurs abusing it to try and get rich quick
- The reduction in leverage should help reduce the volatility in the market somewhat
Binance recently followed in the footsteps of FTX by reducing its maximum leverage to 20x from a ludicrous 125x. Binance CEO Changpeng Zhao said that he took this step because he didn’t want the leverage wars to become “a thing” before adding that, to all intents and purposes, 125x leverage had always been a marketing gimmick – albeit one that was still fully operational and used by his customers. Can we hope then that the return to some semblance of normality can rein in the disastrous consequences of such needlessly high leverage options, both for the market and for individuals?
Leverage Trading Has Added to Crypto Volatility
For some time now, unlicensed leverage trading has caused even more volatility in an already volatile market, and it seems that exchange CEOs are recognizing it now too. Leverage trading taps into the heart of the cryptocurrency trading dilemma – implementing a barrier to usage flies in the face of the ethos of cryptocurrency, but by the same token it presents huge risks to individuals uneducated and inexperienced in it. Many see it as a ‘quick win’ opportunity, which more often than not turns into a ‘quick loss’ reality.
The rise in risky leverage trading has led to huge artificial spikes and drops in the price of Bitcoin and other cryptocurrencies that otherwise would never have been so severe, and it isn’t fair on non-leverage traders to pay the price of the actions of amateur traders who whack the leverage up and start a liquidation chain.
125x a Marketing Ploy That Still Got People Hooked
Zhao may have said that the 125x leverage offer was simply a marketing tool to get people onto the platform, but this is akin to a casino offering a handsome welcome bonus – it entices you in with its promise of the riches just the other side of the sign up page. Even if these inexperienced customers didn’t use the 125x leverage they still used some, often going all in and bankrupting themselves in one fell swoop.
The fact that leverage trading for non-professionals still exists at all is something that the crypto space is just going to have to deal with, unless of course it manages to get itself completely outlawed. While it is here it will continue to increase volatility in both directions as amateurs get sucked in by the bright lights of the Twitter big winners, betting everything on a jackpot win only to lose it all and then cry foul.
Leverage trading represents the worst aspects of the ‘get rich quick’ crypto philosophy, and while it is good that the 125x options are, hopefully, gone for good, the casino is still open for business and will be for some time yet.