Why did Binance just delist AUD, GBP and EUR margin pairings? Expert insights
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With the global regulatory blowtorch intensifying on Binance, the world’s largest crypto exchange by trading volume has been making concessional moves to toe the line and reduce trading risks. Today, it announced it will delist all margin trading pairs for the Australian dollar (AUD), Euro (EUR) and British pound sterling (GBP).
This news, published in an official blog post, comes not long after it came to light that Binance and fellow exchange FTX have both reduced maximum leverage available to customers – both down to 20x, from as high as 101x.
Binance revealed it will suspend the three margin trading pairs on August 10, conducting automatic settlements and canceling all related pending orders. On August 12, the exchange will then officially delist the isolated margin pairs.
Gunnar Jaerv – COO of First Digital Trust, a leading Hong Kong based digital asset custodian – spoke to Stockhead via a Telegram chat about the Binance and FTX margin and leverage moves.
“Binance’s decision to delist the three fiat pairs on margin comes as little surprise due to the regulatory action they faced recently, primarily in the UK,” said Jaerv.
“And trading on leverage is always a risk. It makes sense to limit leverage trading – in the cryptocurrency market a 100x leverage can put someone who doesn’t have the money to pay back in serious trouble.
And what about FTX? Leverage reduction seems like a smart and timely play by them…
“It’s obvious FTX does not want to undergo the regulatory scrutiny Binance is facing,” said Jaerv. “FTX did what was necessary to limit the risk that retail traders can experience margin trading on the exchange, which led to Binance following suit shortly after.”
Jaerv was also considering the industry perception of the exchange de-risking moves.
“The industry may consider it good news,” he said, “because it shows that exchanges will continue to operate in their jurisdictions and want to encourage responsible trading. But it can also be argued that the news is bad, simply because these exchanges are facing regulatory pressure and have to adapt accordingly.”
CFO of DeversiFi, Ross Middleton, also gave Stockhead his thoughts on the leverage trading reductions. DeversiFi is a Layer 2 DEX (decentralised exchange) built using Starkware’s scalable technology.
“The reduction in maximum leverage by FTX and Binance is a long overdue move but is probably too little, too late,” said Middleton.
“[Using] 100x leverage is akin to gambling, especially when factoring in crypto’s notoriously high levels of volatility and the fact that at 100x leverage a 0.5% move in price will result in a trader being liquidated.
“Binance and FTX offering 100x leverage products is probably part of the reason why some regulators such as the FCA (Financial Conduct Authority) in the UK have already moved to completely ban access to such products from UK shores.
“In my opinion, leverage products should be limited to 5x [the average amount of leverage is 2x] and restricted to professionals only.”
Hisham Khan is the CEO and founder of Cryptocurrencies.AI – a centralised and decentralised exchange for smart trading, analysis and strategy. Khan believes the big exchanges are seeking to appeal to as many people as possible, and that regulatory compliance could be the way to do it, rather than facilitating risky trading strategies.
“The initial plan for global exchanges was to innovate at a high speed while regulators were still figuring out how to regulate cryptocurrencies,” he told Stockhead.
“This allowed big exchanges to grow fast, and now they’re trying to get ahead of regulation and comply as much as possible.
“In terms of leverage, we can see that exchanges are trying to appeal to a wider audience and not be associated with gambling or high-risk financial decisions. Reducing maximum leverage also helps with regulators seeing that exchanges are keen and willing to take the necessary steps towards being compliant.”