While leveraging is a popular way for traders to increase returns, the current market downturn reveals the inherent risk of the strategy.
to users in December indicating that it was stopping British investors from using its crypto leverage products. The move was in line with the company’s desire to conform with the United Kingdom's Financial Conduct Authority . The financial regulatory body had, in June 2021,Following the warning, Binance reduced its leverage from 100x to 20x for new accounts in July 2021 to presumably avoid a regulatory storm.
The recent crypto downturn highlighted the need for closer monitoring of crypto firms and more robust regulations for companies with significant assets under their control. As witnessed in the aftermath of the downturn, the lack of clear regulatory framework makes it possible for some crypto agencies to accumulate more debt than assets through leverage. This increases the risks for their investors and creditors.
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