U.S. Arms of Binance, FTX Push Into Margin Trading, But Probably Not at 100x

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Cryptocurrency exchanges based outside the U.S. are pushing to fill what they see as a competitive gap in the world's biggest economy – offering more leverage to traders who have limited alternatives due to a strict domestic regulatory environment.
Antigua and Barbuda-based cryptocurrency exchange FTX plans to launch its newly established U.S. unit this month. Margin trading, in which users can buy and sell assets using borrowed money, could become a key feature of the U.S. operations, FTX CEO Sam Bankman-Fried told CoinDesk.
“The crypto exchange ecosystem as a whole has been in need of competition for a while, and we're excited to be able to offer liquid order books, tons of features, margin trading for qualified customers and a constantly evolving product in the States,” Bankman-Fried said.
Catherine Coley, CEO of the U.S. unit of the big overseas cryptocurrency exchange Binance, told CoinDesk that the company is “actively working toward implementing margin trading.” The business, Binance.US, launched last year.
Outside the United States, traders can get leverage on purchases of cryptocurrencies and derivatives via exchanges including Binance, Bitfinex and BitMEX, in some cases enabling bets of up to 100 times the money down. All three exchanges initially welcomed traders in the U.S. but later started turning some customers away under pressure from local regulators.
“U.S. traders have limited access to margin trading because it's more tightly regulated here than in other jurisdictions,” said Jake Chervinsky, general counsel for Compound, a San Francisco-based cryptocurrency lender.
The dearth of margin-trading venues for U.S. cryptocurrency investors highlights the balkanized nature of the fast-evolving international digital-asset marketplace: It’s nominally a 24 hour, 7-day-a-week realm that crosses sovereign borders, but in reality rules are applied differently by financial authorities across multiple jurisdictions.

Among the world's largest cryptocurrency exchanges ranked by trading volume, only two, Coinbase Pro and Kraken, are based in the U.S. (Source: Nomics)
Jim Harper, a visiting fellow at the American Enterprise Institute and former counsel to U.S. congressional committees, said in an email that domestic regulators are applying a consumer-protection lens to rules governing domestic cryptocurrency exchanges. That may not comport with the mentality of crypto traders who don’t mind taking bigger risks, with less protection.
“Every aspect of the cryptocurrency world is high-risk, high-reward,” Harper said.
CME, the Chicago-based exchange that has offered regulated bitcoin futures contracts since late 2017, allows trading on margin, but at a much lower level than international exchanges beyond the reach of U.S. regulators.
For example, the CME's May bitcoin futures contract requires a maintenance margin of $14,743 per contract, according to the exchange's website. That works out to about 33% of the five-bitcoin contract's closing price on Tuesday, based on a quote of $9,030 per bitcoin. The leverage equivalent is 3x.
The CME is regulated by the Commodity Futures Trading Commission, or CFTC, which imposes strict rules on the use of margin.
“To protect people from getting burned, the CFTC is arguably inhibiting the development of a U.S. market and capacities among U.S. investors to exercise the kind of caution they'll need in what is truly a global financial services market,” said Harper.
At least two U.S.-based cryptocurrency exchanges, Kraken and Coinbase, offer margin trading, but also at a lower level than the high-octane levels on some of the overseas venues. At Kraken, the limit is 5x leverage, and at Coinbase it’s 3x.
“Of course margin trading in crypto specifically is ultra-risky given the tendency for major daily moves, and that might be why U.S. exchanges have been wary to roll it out in a meaningful way,” said Kinjal Shah, senior associate at Blockchain Capital.
Some investors say the availability of leverage can deepen a market by attracting additional traders, in turn helping to assure a good price and execution.
“Margin products available to U.S.-domiciled investments funds are highly limited mainly because of the regulatory hurdles here in the U.S.,” said Justin Yashouafar, managing partner at Los Angeles-based Blockhead Capital.
According to Chervinsky, any exchanges looking to bolster their margin trading offerings are likely to bump into limits imposed by U.S. regulators.
They still wouldn't be able to offer “the high leverage ratios that offshore exchanges have popularized with crypto traders,” he said.

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