In March 2019, a debate flared up on Reddit concerning margin trading features found on Binance Application Programming Interface (API) protocol. At that time, the management of one of the world’s largest cryptocurrency exchanges refrained from commenting on the concerns voiced online.
However, on May 2, 2019, a new round of investigations began after another Binance API update. Now the isMarginTradingAllowed flag is enabled for the following nine trading pairs: BTC/USDT, BNB/BTC, BNB/USDT, ETH/BTC, ETH/USDT, TRX/BTC, TRX/USDT, XRP/BTC and XRP/USDT, and this means a quick start to margin trading on the largest and most popular cryptocurrency exchange. The pairs seem to have been picked for a reason: Bitcoin (BTC/USDT) is the flagship of the cryptocurrency market, and so is Ethereum (ETH/BTC, ETH/USDT); Binance is in close collaboration with Tron (hence TRX/BTC and TRX/USDT); XRP is a popular project that can be backed by big bank money (XRP/BTC, XRP/USDT); and, naturally, the exchange picked its own token (BNB/BTC, BNB/USDT). Binance has plans for it, which we will mention below.
The consequences of the future implementation of margin trading at Binance are much more serious than they might seem at first glance. In this article, we will try to figure out what changes await the cryptocurrency market if these innovations are actually implemented.
- Multiple increase of Binance capitalization
Binance is the face of the cryptocurrency market. Thanks to Binance Launchpad, the ICO renaissance and largest trading volumes, this stock market gained the right to be considered number one among numerous competitors. With its daily average trade volume at $1 bln, Binance can decuple this result thanks to loans that will be at the disposal of each trader. Big investors often look at average daily trade volumes when choosing a trading platform as it directly affects the liquidity, the quality of order fulfillment, number of slippages, requotes, etc.
- Huge investment in altcoins
Bitcoin can’t boast fast and easy growth. It is the first and largest cryptocurrency that enjoys everybody’s attention and its capitalization accounts for almost half of the capitalization of all cryptocurrencies ever developed. With this in mind, it strikes the eye that many coins in the top 10 or top 20 have the capitalization that is dozens and hundreds of times smaller than that of Bitcoin. Margin trading will increase investment and speculative appeal of these coins for all categories of investors. A small risk-generating part of the portfolio can be allocated for trading these coins thus increasing the speculative capacity of each instrument by using leverage.
- Binance beats competitors
The BNB exchange token, Binance Coin, showed the most growth this year. In the beginning of 2019, it cost $6, and as of early May, BNB has already reached $23, hitting an all-time high. The reasons were the new format of working with ICO, the general hype around Binance Launchpad, as well as the company’s cooperation with Tron and the plans to develop their own stablecoin. The BNB token is, in fact, a Binance share whose price reflects the ups and downs of the exchange. The BNB is also helpful in lowering transaction service charges. With the introduction of margin trading, the fees will grow, therefore the demand for BNB will grow as well because this token will allow for lowering service fees. So far, it is the only exchange token that can do so.
- Regulators to tighten control
With the introduction of margin trading, Binance will have clients whose trading positions will be weakened due to a lack of margin funds. Regulators in all countries keep a close eye on this situation and often consider platforms that allow an elimination of user accounts or margin calls a threat.
But there is no reason to worry. Excessive attention from regulators normally prompts exchanges to work in a fairer and more transparent manner, hold independent audits of their accounts, and so forth.
- New wave of cryptocurrency popularization
The upsurge of liquidity will allow for abrupt pump and dumps of most altcoins. Just as in the second half of 2017, this will lead to increased attention from those who previously showed no interest in cryptocurrency-related topics. This will result in a mass inflow to foreign investments in the cryptocurrency market. Media coverage, launching new investment foundations, and the second wave of ICOs will initiate an inflow of money from the stock and exchange markets in cryprocurrencies, as well as from users’ personal savings, pension funds, mutual investment funds, and others.
Curiously enough, Binance has been at the peak of innovations and media coverage for the second time this year. The events we are witnessing may well be Binance’s true revolution; they promise changes that will have an effect on the entire cryptocurrency sector. Each of us will soon see the consequences of this revolution.
By Eduard Khisamov, trader, analyst