The first cryptocurrency exchange platform, Binance follows FTX degrees and limits leverage to 20 times instead of 100 times.
A smaller lever to protect users?
In finance, the leverage effect combines techniques for multiply profits or losses investments. This article from Cointribune discusses the mechanization of leverage in more detail.
If they promise very high profits, leverage mainly causes large losses among consumers, inviting them to hope for a big win.
Following the publication of a platform for trading crypto derivatives FTX, it’s your turn Binance to predict this lever is now limited up to 20 times for futures contracts against 100 times before.
Currently, this decision only applies to new users registered on the platform from 19 July. However, the CEO Changpeng Zhao stated that this development will gradually be extended to other users.
Even if he has not chosen to make that decision, Zhao nevertheless determined this Binance worked “in the interests of consumer protection“. If we add that “the volatility increases with the lever effect“.
It should be noted that leverage is a mechanism that is often criticized in the financial world and especially in the extremely volatile cryptocurrency market.
But cryptocurrencies are still so volatile
Of course, by reducing the lever power, the amount of losses is also reduced, which is always present. As pointed out Sam Bankman-Fried, CEO of the company FTX, high leverage is only a small part of cryptocurrency volatility. In other words, even without this mechanism cryptocurrencies are inherently very volatile.
To make sure of this, it is enough to observe the development of Bitcoin (BTC) and Ethereum (ETH) in recent months. Bitcoin has seen its value divided by two, from close to $ 64,000 in mid-April to about $ 32,000 Currently. The same is true for ETH, whose value increased by more than $ 4000 in mid-May, at $ 2000 Currently. Knowing that any price is sprinkled with many peaks and troughs, with a value that can develop dozens of points in just 24 hours.
Reducing leverage is the first step, but it is not enough for institutions and the general public to really view cryptocurrencies as anything other than speculative products.
An interest in new technologies teleported me into the blockchain universe. The dimension is so complex as it is so large that my brain first responded in “Error 404” mode and responded to a space-time error before I gradually understood the codes.
There is still a long way to go to solve the crypto god, but in the meantime I take the opportunity to share my passion with you.
The comments and opinions expressed in this article are solely those of the author and should not be construed as investment advice. Do your own research before you decide to invest.