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.

Jul 25, 2021 at 7:36 p.m. UTC

Updated Sep 14, 2021 at 1:30 p.m. UTC

Key Speakers At Bitcoin 2021 Event — FTX and Alameda Research CEO Sam Bankman-Fried

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 [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.

UPDATE (July 25, 20:00 UTC): Adds background about FTX and Binance in the last few paragraphs.

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