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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.
Updated Sep 14, 2021, 1:30 p.m. Published Jul 25, 2021, 7:36 p.m.
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.
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- 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.
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