Being the world’s leading cryptocurrency exchange is a privileged position. However, that also means any change will have global consequences. Binance shut down all Australia-based derivatives trading positions, triggering a market flash crash.
What Is Binance Thinking?
There are many arguments to be made as to why Binance did what it had to. All Australian derivative positions and accounts have been closed effective immediately per the company’s notification. That would normally apply to certain users violating the terms of service. Unfortunately, it applies to all platform users. That means any perpetual position – long or short – was liquidated immediately, creating tremendous market pressure.
In the notification, Binance confirms its Australian branch will remain operational. Users can still buy and sell cryptocurrencies and experiment with other services. Unfortunately, derivative trading is no longer allowed unless users want to go through an additional verification procedure. That includes submitting information on classifying as a “Wholesale Investor”.
holy fk binance just liq'd all AU perp positions
— illiquidity providoooor (@skyquake_1) February 23, 2023
For those unaware, a wholesale investor needs a certificate and net assets exceeding AU$2.5 million, or a gross annual income of at least AU$250,000. Another option is to control assets worth at least AU$10 million, intending to invest over $AU$500,000, or have a certificate of being a Professional Investor. That latter option requires various licenses, meeting regulatory guidelines, etc. The average person on the street will likely never access Binance perpetuals again.
Following the forced liquidation, crypto markets nosedived quickly. Bitcoin dropped well below $24,000, and Ethereum is on the cusp of breaking its $1,630 support. Curiously, BNB, the native asset of Binance, seems relatively stable despite the turmoil. Some altcoins may wither the storm better than other currencies. Even so, another seemingly unnecessary market setback warrants a broader explanation.
Compensation is Coming, Allegedly
The announcement by Binance Australia mentions how affected users will receive compensation. A remediation and compensation plan is being deployed, although specifics remain unclear. That doesn’t mean users who saw their portfolio crash will be fully reimbursed. They may see some money back, but a cut on trading fees for the following 3-6 months seems a more plausible outcome. That “credit” should help offset some of the losses.
Keeping funds on a centralized exchange is problematic. Regardless of how one aims to trade, the money isn’t yours when an exchange has it. As such, decentralized trading solutions are essential. There are ways to trade perpetuals without centralized platforms, although they are not without drawbacks either.