It’s hard to believe that the Binance stock market is just two years old. Especially when we consider the steep development of its growth and its dominance in the market. The introduction of margin trading is now intended to further strengthen this position.
While other exchanges such as BitMEX or Bitfinex already offer margin trading, Binance has access to a much larger existing user base. But what impact will this move have on the cryptographic markets?
What we know so far
The first indications of margin trading on Binance appeared in a tweet on 24 May. In this tweet, Binance gave an insight into its new user interface with a screenshot post. However, a clearly visible button for margin trading attracted more attention than the new user interface.
Margin trading offers the possibility of borrowing funds to make larger trades with the aim of increasing your profits. However, it is well known that this leverage works in both directions, as the increased chance of profit is accompanied by an increased risk of loss. As the crypto markets are known to be volatile, margin trading here is all the more risky.
Therefore, margin trading is only for experienced traders who are looking for a healthy risk/loss ratio in their trading strategies. As borrowed funds are subject to interest, margin trading is usually most effective for short-term transactions.
Not too many details about margin trading on Binance are known yet. The only certainty is that it will be introduced soon. However, it is still unclear how much leverage will be provided and to which crypto currencies margin trading will be applied.
Does this herald an unprecedented Altcoin season for Binance?
Given the current bull run, driven by the Bitcoin price, which is increasingly attracting trading activity, Binance’s move could now be the catalyst for an unprecedented Altcoin season. The indicators are already there. For example, the interest of Google’s Altcoin searches is already at the level of the last bull run at the end of 2017, also driven by the Bitcoin price. According to CoinMarketCap, the global market capitalization of all crypto currencies in November 2017 was about the same as today. Bitcoin held a similar market share.
- In 2017, however, the crypto markets did not yet have the maturity stage they now have. The options for margin and derivatives trading were significantly lower than today. As margin trading increases purchasing power, it is often used to diversify portfolios as a strategy to offset the risk of loss. This could be good news for the Altcoins as stock market users look for new channels to generate trading profits.
- The ability to leverage profits from old coins such as the BNB token or other rising stars has the potential to attract more traders. It could open the crypto markets to traders from traditional markets such as Forex, where the margin helps to exploit smaller market movements than we normally see in the volatile crypto markets.
Could the Bitcoin price be threatened by margin trading?
On the other hand, margin trading enables short selling and in the past, many believe it was responsible for the sharp drop in the Bitcoin price. However, this is a questionable assumption. Short selling takes place in traditional markets and should contribute to overall stability. After all, betting in the market works in both directions to balance each other out.
In addition, market manipulation by traders in crypto has proven to be widespread. For example, bots are used for was trading to artificially inflate trading volume. Binance CEO Changing Zhao (CZ) has previously commented on the exchange’s policies and practices on wash trading and other market manipulation tactics. He stressed that independent researchers have found no evidence that such machinations take place on Binance. A recent report by Bitwise aims to confirm CZ’s position that its exchange is free of wash trading.
In conclusion, there are some strong signs of a promising old coin season. With the new margin trading offer, Binance seems to be seizing the opportunity to fuel the whole thing and at the same time further expand its market dominance. However, it is also inevitable that the markets will always go up and down. What is important at this point is that Binance’s entry into margin trading shows that the crypto financial markets are being redirected to the market.