(Bloomberg) --
Two of the biggest crypto exchanges are reducing maximum leverage on offer to traders.
The cap on both Binance and FTX Trading Ltd. will now be at 20 times, instead of 125 and 101, respectively, according to company statements.
In Twitter posts, executives cited consumer protection, with FTX's Sam Bankman-Fried aiming to “encourage responsible trading.” Bankman-Fried said the average employed by traders is about two times their positions.
“This will hit a tiny fraction of activity on the platform,” wrote Bankman-Fried in a post. “While many users have expressed that they like having the option, very few use it.”
The use of borrowed money to ramp up exposures to the underlying assets has been blamed for extreme price moves such as a May selloff, which cut Bitcoin's price by more than a third. While crypto exchanges moved to rein in the most extreme use of the strategy, they are far from turning it off -- with 20-times leverage still higher than what's offered in standard U.S. stock-market accounts.
High levels of leverage have long been a feature of freewheeling crypto exchanges, which have thrived on volatile moves to entice new traders. In 2019, Arthur Hayes, then the chief executive officer of BitMEX, said at a conference that “Bitcoin is fun, but it's a hell of a lot more fun at 100 times leverage.”
In Monday trading, Bitcoin surged more than 10% near $40,000 as a crypto-related job ad from Amazon.com Inc. stoked speculation about the company's involvement in the industry.
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