Binance Restricts Leverage to De-Risk BTC Trading
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The Binance International exchange has turned into one of the important hubs for spot and derivative trading. But high leverage has led to increased risk, mostly related to risky positions on the direction of BTC prices.
The founder and CEO of the Binance Changpeng “CZ” Zhao announced the limitation of leverage for new users, with the intention to apply the new rules to all users. The exchange did not clarify why the limitation was needed, but it may be part of stricter cryptocurrency regulations and consumer protection laws.
Until July 19, Binance allowed up to 125X leverage even for new users, creating significantly risky positions. BTC leverage attracted risk-takers willing to make the best of volatile prices, and a 100X leverage was attractive for the potential to amplify gains.
Did Binance Leverage Help the Recent BTC Spike
Some of the explanations for this week’s hike of BTC above $40,000 include the accrued leveraged positions on derivatives trading. A rapid upward move will liquidate significant leveraged positions, increasing price volatility.
In theory, limiting leverage may also limit losses. BTC trading remains extremely risky, and derivatives have raised doubts about deliberate price manipulation to attack both short and long positions.
BTC Trading Gets Lower Leverage
After reaching peak values in May, BTC market prices slid along with a significant de-leveraging of positions. One of the reasons was the increasingly fearful attitude of traders.
But the other factor was renewed scrutiny of Chinese regulators, which caused most regional exchanges to lower their maximum allowed leverage back in June.
Demand for highly leveraged trading allows for significant gains, but also opens new traders to outsized risks.
For BTC prices, the lowered leverage positions may mean less volatility and less incentives to attack the positions. Since most BTC markets are unregulated, it is possible to sway the price in a way that creates a short squeeze and leads to 10% daily fluctuations.
Can BTC Revisit $40K
The rapid spike of BTC to anomalous prices as high as $48,000 unraveled quickly. After the liquidation of short positions, BTC slid to the $37,000 range again.
Now, the question remains whether the recent rally was mostly due to leveraged trading anomalies, or return to stagnant prices.
How Binance Futures Will Evolve
Binance relies on stablecoins to take up leveraged positions in BTC futures trading. But the importance of its native stablecoin, BUSD, keeps growing.
Along with limiting the maximum allowed leverage, Binance will introduce BUSD-based collaterals.
BUSD now makes more than 10% of stablecoin market capitalization, and about 7% of trading volumes, as it displaces the importance of Tether (USDT).
The importance of Binance in the crypto ecosystem keeps growing, also boosted by Binance Coin (BNB) positions. The native asset, which can run on two blockchains, manages to keep its price above $300.
Binance Goes Through Ethereum Wallet Prophylactic
To avoid fears and speculations, the Binance exchange has announced its intended maintenance. The temporary closing of ERC-20 wallets is scheduled for noontime GMT and was intended to continue for two hours.
The maintenance period may limit some important withdrawals, such as ERC-20 stablecoins, including USDT and USDC. However, the limitation is temporary and will not significantly affect trading.
Binance Smart Chain Continues Expansion
One of the chief components of the Binance ecosystem is Binance Smart Chain, the faster and cheaper network that has created a hub for decentralized finance.
BSC is yet to recover its total value locked from the peak in May. But in the past few weeks, the ecosystem of projects and decentralized exchanges shows slow but steady growth in total value locked.
The gross value locked on BSC has fallen toward its baseline value locked of around $14B, compared to nearly $60B locked into Ethereum-based projects.
Binance Smart Chain Fights Potential Exploits
One of the significant problems of Binance Smart Chain are the exploits and rug pulls happening for some of the newly arrived protocols. Decentralized trading on PancakeSwap, the chief decentralized exchange, remains highly risky.
BSC recently launched a $10M bug bounty program for all projects built on top of the protocol.
Even with audited smart contracts, the risk of exploits remains. The Priority ONE program will mix project curation with a bug bounty fund. Not all startups are eligible, and the program will first take up a batch of 30 distributed apps.
Binance will build a BNB fund that will supplement the bug discovery efforts. The program will apply for startups that already went through at least two security audits from reputable companies, and also put at least $100,000 toward their own bug discovery program.
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