Under the heavy blow of domestic supervision, Huobi has cut off its leveraged trading business

According to reports, the cryptocurrency exchange Huobi has surrendered to a series of heavy blows from domestic regulators and has now cut its leveraged trading business. Its maximum leverage value has been reduced from 125 times to less than 5 times. New users registered on the platform will no longer be able to use leverage.

Leverage allows traders to borrow huge amounts of money and add it to their positions, with the goal of leveraging higher profits with small amounts of money. However, leverage is also a double-edged sword, and a little carelessness can lead to margin liquidation (before the trader's balance becomes negative, the loan must be repaid or collateral must be increased to ensure that it is not liquidated).

The high leverage currently offered by various exchanges (usually up to 125 times) is a useful tool for traders, but for ordinary retail investors, it may be the perfect example of a casino.

With high leverage, any slight reverse fluctuation in the market can lead to the blow-up of traders. If you don’t know how to use 50x or 100x leverage carefully and accurately, this kind of trading is essentially the same as gambling. Exchange regulators around the world try to minimize retail investors from taking huge or unnecessary risks, and keeping in line with these potential laws may be part of the reason behind Huobi’s move.

Over the past month, China has stepped up its crackdown on Bitcoin and the entire cryptocurrency market.

On May 18, three ministries - the Internet Finance Association of China, the China Banking Association, and the China Payment and Clearing Association jointly issued the "Announcement on Preventing the Risks of Virtual Currency Trading Speculation". The announcement pointed out that virtual currency does not have monetary attributes and directly warned the exchange market.

On May 21, the Financial Stability and Development Committee of the State Council held its 51st meeting, continuing to emphasize the resolute prevention and control of financial risks, "cracking down on Bitcoin mining and trading, and resolutely preventing individual risks from spreading to the social field", and directly included Bitcoin mining and trading in the crackdown list. The subsequent release of a series of decrees directly triggered a wave of withdrawals, and many large mining farms have begun to seek opportunities to go overseas. In the medium and long term, the domestic mining industry will enter a contraction phase.

On the same day as the three ministries issued the announcement, the Inner Mongolia Autonomous Region Development and Reform Commission issued the "Announcement on the Establishment of a Reporting Platform for Virtual Currency "Mining" Enterprises", which comprehensively cleaned up and shut down virtual currency "mining" projects. Bitcoin miners were notified that they had two months to clean up the mines. Under the current general trend, building mines in crypto-friendly areas to better obtain sustainable energy for mining may be the best long-term solution for miners.

As domestic cryptocurrency mining and trading facilities begin to be gradually divested, large traders may gradually turn to regions such as Hong Kong, Singapore or the United States to seek more suitable development soil.