Binance Investigates Market Decline Amid Sudden Token Sell-Offs

One of the world’s leading cryptocurrency exchanges, Binance, has recently been dealing with a number of fluctuations in the market that have hurt many small-cap tokens.

The platform’s help desk has started looking into the issue and has come back with some initial findings. The help desk report indicates that the price drops seem to have been caused by large-scale, fast trades that went through, ostensibly, a number of different accounts—both VIP and non-VIP. The report also noted that no individual account appears to have profited from these trades.

Traders and market participants are worried about falling prices, especially about what the big players in the market are up to. Binance told us that three VIP users cross-sold a total of 514,000 USDT worth of small-cap tokens in a very short time in the spot market. Meanwhile, a non-VIP user moved a huge amount of ACT tokens over from other platforms and sold about 540,000 USDT worth of tokens in the spot market, again in a very short time. This latter sell-off also seems to have contributed to recent price drops. Without question, both of these events and the two big sell-offs that we are now calling out seems to have added a big shot of volatility to an already shaky market.

The large-scale selling of small-cap tokens caused by the plummeting prices set off a cascade of reactions from traders. As the worth of specific tokens continued to drop, many reportedly shut down their futures contracts, adding more fuel to the fire. For the making of tokens that haven’t collapsed in value yet, this is the toughest stretch for market participants, especially those holding downturn-stricken token portfolios with leverage. Selling in this environment might only serve to create a fresh set of liquidation events.

Even though there is volatility, there is also clarity from Binance in terms of what happened and who was responsible for it. There were no accounts that Binance could identify as making big bucks from the dump—and by extension, the main suspects behind this dump look less and less like elements of a big coordinated short.

Binance holds a customary position regarding market activities, one that is amenable to its usual approach: So long as trades stay within the platform’s terms of service, the exchange does not regulate its users. Inside a market where large holders can often drive the price of small tokens up or down, that fact is rather convenient for Binance.

To counteract the recent market conditions and to further reduce volatility, Binance has changed the leverage ratio. Leverage in trading permits traders to hold larger positions than they would otherwise be able to with only their initial capital, but it also increases risk. In this case—it having been a very recent market condition price dip—Binance adjusted leverage for some trading pairs. And not just for some trading pairs, but for 5x the amount of trading pairs Binance had previously altered leverage for, which is a staggering 20 pairs in total. That means 20 different crypto-to-crypto trading combinations were at risk of destabilizing the market by an even greater amount than they already were. And at risk is an understatement.

The leverage ratios are being adjusted as a part of Binance’s overarching strategy to protect both the users of the platform and the platform itself from potential market risks. The exchange explained that such measures are taken on a regular basis and are based on a number of different factors—like liquidity, market sentiment, and the overall trading volume of various assets—that we take to be indicators of stability within the relevant asset class. The reduction of leverage ratios in conditions of pronounced volatility, for instance, is a precautionary measure aimed at protecting the user’s assets and preventing market risk from getting out of hand.

Even with these adjustments, Binance stressed that no active position reductions for users took place during this time. Market makers, who are vital in supplying the market with liquidity, keep doing what they do best and as usual. And what they do is provide the market with more depth, better pricing, and more chances to trade; in other words, it’s normal for market makers to market make. Binance remains committed to carrying out business in a way that’s both robust and transparent. And its market maker program, as it turns out, is a way of doing both.

Given the current investigation and the recent screwy market, Binance has been extra attentive to the safety of its users’ assets. The platform has encouraged all users to be attentive and responsible when it comes to managing the risks around asset safety and staying on top of any changes that could affect their position. The risk framework at Binance includes regularly managed leverage that scales the other half of the equation, which is to ensure that the platform itself is safe and sound.

Cryptocurrency markets are still fluctuating, and that makes trading a risky business.

Binance is big, but any exchange can only work properly when users act sensibly. Yet to act sensibly, you first need to know what actions are sensible and what aren’t. This is especially true when you put a significant portion of your assets into a high-risk trading endeavor like using leverage. Periods of extreme price movements are not the time to be taking on extra risk, and in the following article, Binance makes that basic point.

The recent sharp drops in the prices of small-cap tokens on Binance remind everyone of the volatility that is built into the crypto market. While the platform works to uncover the reasons behind the price plunges, it seems the overall directive has been to tighten measures and make the platform safer for users.

In response to the small-cap price drops, Binance has adjusted leverage and taken other steps to manage risks and better ensure a safe trading environment.

While the probe is ongoing, Binance has committed to keeping its users informed of any pertinent new developments. And with the crypto market still in flux, traders are being advised to manage their risk exposure with some degree of proactivity, positioning themselves for whatever fresh challenges and opportunities the lightning-evolving world of cryptocurrency may have in store.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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