October 4, 2023

Bankman-Fried said on Sunday that only a small percentage of traders are taking advantage of the maximum leverage available. He also argued that FTX had fewer liquidations than other exchanges and that he had long sought to “promote responsible trading”.

Still, he predicted in an interview last week that some investors would not welcome a move to reduce debt. “We’d get a consumer outcry if we got rid of it and we’d get very bad press,” he said. “But it could be the right thing.”

Mr Bankman-Fried also admitted that high leverage created the impression that exchanges like him were promoting risky trading, although he claimed it was not a fair conclusion.

This perception is partly why regulators around the world are keeping an eye on Binance, the world’s largest cryptocurrency exchange. It has only been since June that the exchange has been under increased scrutiny by financial regulators in the UK, Cayman Islands, Hong Kong, Lithuania, Italy, Poland and Thailand, many of whom are critical of their high-leverage derivative offerings or a new line of products launched this spring which allows customers to buy cryptocurrency-linked versions of stocks like Tesla and Apple.

Mr. Zhao, the Sino-Canadian founder of Binance and developer who traces his professional roots back to Wall Street, said the extreme leverage numbers are just a “marketing gimmick” and that most traders don’t use them.

Timothy Massad, the former chairman of the Commodity Futures Trading Commission, which regulates derivatives in the US, said he welcomed FTX’s decision and hoped other platforms would follow suit. Binance and FTX are two of the largest exchanges in the world, but others, including Phemex and BitMEX, were still offering 100x leverage until Sunday, at least according to their websites.

FTX’s move, said Mr Massad, could be partly motivated by FTX’s success last week in raising $ 900 million in venture capital, the highest ever value for a cryptocurrency exchange. FTX’s high leverage offerings are more likely to damage its reputation as Mr Bankman-Fried seeks to expand the global reach of its platform, Mr Massad said.