Coinbase leverage limits hit all-time low – Traders in disarray

Coinbase International Exchange, an extension of the renowned U.S.-based Coinbase crypto exchange, has recently announced a significant change in its leverage policy, stirring the crypto trading community. The exchange has decided to cap trading leverage at a mere 10x for its perpetual futures products, a move that marks an all-time low for the platform and sends waves of uncertainty among traders.

Coinbase’s New Leverage Limits Spark Concern Among Traders

The decision, announced on December 28, directly impacts popular perpetual futures contracts involving major cryptocurrencies such as Bitcoin (BTC), Cardano (ADA), Ethereum (ETH), Litecoin (LTC), Solana’s SOL (SOL), XRP (XRP), and others. This new policy restricts traders using 10x leverage to a maximum notional value of $90,000 across all perpetual contracts.

Coinbase International Exchange’s new leverage policy is seen as a cautious step in an industry often criticized for its high-risk environment. While traders can continue transactions after hitting the 10x leverage ceiling, they are now bound by default initial margin (DIM) requirements specific to their accounts. These requirements range from 20% (equivalent to 5x leverage) to 40% (equal to 2.5x leverage), depending on the digital asset involved in the perpetual futures contracts.

This move by Coinbase International is not an isolated incident but rather part of a broader trend of tightening regulations and risk management strategies within the crypto trading sphere. The company has stated that these limits are subject to frequent review, influenced by factors such as order book depth, trading volumes, and results from stress tests against the exchange’s insurance fund balances.

Strategic Shifts Amid Regulatory Pressure

Coinbase International’s adoption of more stringent leverage limits follows its expansion into Bermuda under a new regulatory regime. The exchange commenced its perpetual futures trading for clients in September after obtaining a class F license from the Bermuda Monetary Authority (BMA). This expansion was partly in response to increased scrutiny by the U.S. Securities and Exchange Commission (SEC) on its U.S. counterpart.

The Bermuda-based international exchange caters to non-U.S. consumers in select countries, setting itself apart from its U.S. parent with a different regulatory approach. To trade on the Coinbase International Exchange, customers undergo eligibility tests before they can open a Coinbase Advanced trading account.

The leverage cap introduced by Coinbase International Exchange is reflective of a growing trend in the crypto industry towards more regulated and cautious trading practices. This shift is not only a response to regulatory pressures but also a recognition of the systemic risks associated with high-leverage trading in the volatile cryptocurrency market.

In essence, Coinbase International Exchange’s decision to limit leverage to 10x represents a significant shift in the landscape of cryptocurrency trading. This move, aimed at balancing access to high leverage with the need to mitigate systemic risks, is a clear indicator of the evolving nature of the crypto market.

As regulations tighten and the industry matures, exchanges like Coinbase International are adapting to ensure a more stable and secure trading environment for their users. This development is a critical step towards a more sustainable future for cryptocurrency trading, though it leaves many traders adjusting to a new normal.