Binance, one of the leading cryptocurrency exchanges, has recently started rolling out the 2.0 update for its website, which is set to bring multiple new features to its user base. Among said features is margin trading, a more complex trading method for advanced users. In this article, we will go over the 2.0 update, what it brings to the table, how it compares with other services that offer margin trading, and how the update has been received by the community.
Speculation around the 2.0 update started brewing on May 21, when the official Twitter account of Binance posted a cryptic image with nothing but “2.0” written in the middle of it. Some users were quick to guess that this meant an update with margin trading was on the way, while others jokingly speculated that this was a teaser for Bitconnect 2.0 (coincidently, a since-then suspended Bitconnect 2.0 Twitter account announced that Bitconnect 2.0 was coming on Jul. 1, just three days before Binance’s tweet).
Binance first teased the 2.0 update on Twitter, which led to speculation from users.
Binance would keep teasing the update on social media, and the addition of margin trading to the exchange was eventually confirmed three days later. Binance tweeted screenshots showcasing the different available color layouts for the website on May 24, and users were quick to point out an important detail: the screenshots included a tab for margin trading with a reminder of its inherent risks, confirming that it was going to be introduced onto the exchange. The 2.0 update would eventually be officially confirmed next month, when Binance announced on Jun. 13 that the update had begun rolling out, starting with 1% of the users first, and progressively becoming accessible to more users at random.
The 2.0 version of Binance comes with many new small updates, but most of them don’t warrant granting the update they are part of the Binance 2.0 name. The exception here is margin trading, which is an additional tool for traders who wish to have more advanced trading options. However, many inexperienced or unaware traders may still ask: what is margin trading?
The trading method that most cryptocurrency traders are familiar with is commonly known as spot trading. Spot trading refers to the purchase of a currency by exchanging it with another currency that you are holding in your balances, i.e. depositing USDT in your wallet to purchase XRP. While still suffering from the inherent risks of cryptocurrency trading, spot trading is a straightforward method that is employed by newcomers and experienced traders alike, and is the trading method most commonly found on crypto exchanges.
Margin trading, on the other hand, is a form of trading where users can leverage their crypto holdings by borrowing funds and thus increase their buying power to invest in other cryptocurrencies. Given the volatility prevalent in the cryptosphere, margin trading is a high-risk, high-reward system which, if used correctly, can maximize profits if the coin you invest in goes up in price. That being said, margin trading is risky, because if the price of the coin you invest in goes down, you’ll end up suffering bigger losses. This is why margin trading is only advised for experienced traders who have a grasp on the more technical side of the cryptocurrency market. During a Jun. 18 AMA, Binance’s CEO Changpeng Zhang revealed that Binance was taking a conservative route in their margin trading platform, only offering leverage in the range of 1x to 3x.
In order to be able to engage in margin trading on Binance, users need to comply with their verification process and submit an application for a chance to gain early access to the feature.
In addition to adding the margin trading feature, the 2.0 update also includes other minor additions and tweaks to the platform. One of the most relevant additions for the Binance ecosystem, and one that has been available since January 2019, is that the platform now has a section where users can purchase cryptocurrencies with fiat money. According to what has been announced, users will be able to use their credit card to purchase cryptocurrencies via payment processing company Simplex, which will allow users to purchase BTC, XRP, ETH, LTC, BCH, and BNB (just like on Changelly, Bitcoin.com, and Coingate, et al). The capability of purchasing stablecoins TUSD and PAX via bank transfer has also been announced, but at press time only the option to purchase crypto with a credit card is available.
The rest of the upgrades, while beneficial, are less momentous. Among these is a visual revamping of Binance’s website, better language support, improvements to its user and support center, and an enhanced back-end framework for a better performance of the website.
Though not directly related with the 2.0 update, Binance CEO Changpeng Zhao recently announced during his Jul. 2 presentation at the Asian Blockchain Summit that Binance will also be offering a platform for futures contracts, which would be an additional option for traders. According to what was said during his keynote, the futures will only be in Bitcoin, and will purportedly offer up to 20x leverage. There is not an exact date for the unveiling, but Zhao stated that the futures testnet will come about one week after margin trading is rolled out to all Binance users, something that is expected to happen around Jul. 11.
A screenshot of Binance depicting the additional platforms for margin trading and futures contracts.
Margin trading has become something of a trend among cryptocurrency exchanges, and Binance joining in will probably cause other exchanges to create their own margin trading platform in the future. Currently, there are multiple exchanges who offer margin trading, and Binance pales in comparison with them in terms of leveraging power. As stated above, Binance has employed a cautious approach by only offering a leveraging power of 1x to 3x. In comparison, other exchanges, such as Prime XBT, Bitmex, and BaseFEX, offer up to 100x leverage. Due to its conservative leverage range, the Binance margin trading platform could be considered a bit underwhelming to some users. There are other well-known exchanges that mirror Binance in terms of leveraging power, Kraken is one example, but even then its leveraging power is 5x, which becomes significantly greater than Binance’s 3x when large amounts of crypto are leveraged.
However, this doesn’t mean that exchanges that offer high leveraging power to their users are the best option all the time. In some cases, exchanges that offer high leveraging power are relatively unknown, and are not as trustworthy as the more established exchanges, or they may charge higher fees. Additionally, an exchange’s reputation and history play significant roles in all this. Bitmex, for example, is infamous for its “order submission error” issue when the system is overloaded, and Bitfinex, which has a leveraging power of 3.3x, has seen its reputation tainted because of the Tether/Bitfinex scandal.
Bakkt is another example, but it is one that stands out from the crowd due to being owned by the Intercontinental Exchange (ICE). Bakkt was first announced in August 2018 as an “open, global ecosystem with regulated custody and market-based solutions for the purchase, sale and storage of digital assets”. As a strictly regulated exchange, issues like security risks and more are tackled comprehensively. Being a part of the ICE (which manages 23 exchanges worldwide) allows Bakkt to have prominent powerful backers such as Microsoft and Starbucks, as well as institutional backers. This is important because having regulatory compliance goes a long way towards bringing these institutional backers closer to cryptocurrencies and helps to stabilize the market, since investment and participation from mainstream companies contribute to lowering the crypto market’s volatility.
From its inception, the exchange has said that it would not support margin trading. Bakkt CEO, Kelly Loeffler, stated last August that the platform’s buying and selling of Bitcoin will not include margin trading, but that it’s “fully collateralized or pre-funded”. Bakkt’s main offering is to be the first one-day physical delivery Bitcoin futures contract, against fiat currencies, which “will be traded on ICE Futures US (IFUS) and cleared on the CFTC-regulated exchange and clearinghouse ICE Clear US (ICUS)”. The exchange also plans to list a monthly Bitcoin futures contract, thereby enabling trading in the front month and across the forward pricing curve. The user acceptance testing of futures is expected to be implemented this month.
After the first reports of Binance adding a platform for margin trading surfaced, speculation from people in the crypto industry was quick to follow. Jacob Canfield, a CNBC-featured crypto trader, was categorical in saying that margin trading will allow Binance to capture shares from competing margin trading platforms Bitmex and Bitfinex, and that it would mean a significant boost for the BNB token. However, he later specified that this will be due to longstanding problems with Bitmex and Bitfinex. Other members of the crypto industry pointed at other possible implications of Binance’s margin trading platform, namely that altcoin trading could be negatively impacted by the increased availability of BTC margin trading platforms.
Jacob Canfield predicts that Binance’s margin trading platform will trump over competing exchanges, which will subsequently boost the value of BNB.
While the announcement of the margin trading platform was welcomed by users, the margin trading platform got off on the wrong foot with its user base. Only 13 days after announcing that the platform was going to be rolled out progressively, Binance announced on Jun. 26 that early access to margin trading had been granted to all users of the exchange. However, this was clearly not the case, as the vast majority of feedback to the announcement consisted in users claiming that they still needed an invite to be able to access the margin trading platform.
Even after Binance had granted access to all members of the exchange to the margin trading platform, multiple users pointed out that they still needed an invite to access it.
At press time, the problem still persists, which means that Binance likely backpedaled from granting early access to margin trading to everybody. Users will most likely have to wait until the proposed Jul. 11 date before they are able to try the margin trading platform out.
Other users also voiced their dissatisfaction with the new platform for various reasons. Some pointed out missing buttons and links within the interface, which prevents users from going back to the basic version of the exchange if they decide to click on the advanced view, while others described the new website as laggy and unstable, even pointing out the fact that it was displaying incorrect or outdated information about prices. Finally, another point that generated criticism was that the margin trading feature was clearly not meant for “everybody” in the first place, as people from the United States, Iran, South and North Korea, Syria, Cuba, Crimea, Canada, and Japan are unable to use the platform.
There’s no denying the importance that Binance has in the cryptocurrency space. They were the trailblazers for IEOs, and they are looking to shake things up once more by popularizing margin trading. Thus far, they have had a rough time of it with their failed early access and conservative leveraging power. Considering the number of users that trade on Binance daily, offering leveraging power of x100 could see to countless people losing their collateralized funds, which is why taking a more measured approach could make sense for a platform that is still in its infancy. The rest of the changes from the 2.0 update are mostly small improvements that, while helpful in their own right, could have been implemented without any fanfare.
Still, at the end of the day, all the hype surrounding the new update raised expectations, which will probably be beneficial for the exchange in the long run. If margin trading ends up being highly successful on Binance 2.0, chances are other exchanges will follow suit soon, which could in turn help traders to be savvier when investing in cryptocurrencies.
Thanks for reading,
The COIN360 Editorial Team