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- Bithumb halves leverage on its coin lending service to address investor risk.
- South Korean regulators move toward stricter virtual asset lending guidelines.
- Industry braces for rules that may mirror stock market leverage limits.
South Korean cryptocurrency exchange Bithumb has scaled back its coin lending service just weeks after launch. The leverage ratio has dropped from four times to two times. The maximum borrowing limit now stands at 200 million won, down from 1 billion won.
The development comes amid growing concern regarding losses among investors related to risky trading. The firm resumed the lending service on August 8 after temporarily putting it on hold in late July. The suspension was initiated when the lending volume available was unable to satisfy demand. Following an in-depth analysis of the service, Bithumb decided on more stringent limits.
The move serves to shield users and ensure service quality. Even A-grade traders are subject to these new constraints. Investors who have conducted more than 100 billion won of cumulative trades in the past three years are subject to the same lending limit as other users.
Bithumb Revises Rules Ahead of Service Relaunch
The changes come as South Korea’s financial watchdogs take a closer look at leveraged cryptocurrency products. On July 31, the Financial Services Commission and the Financial Supervisory Service joined forces with the Korea Institute of Finance and major exchanges to form a task force.
Their focus is to develop proper guidelines on virtual asset lending. Regulators have cautioned that some lending platforms provide excessive leverage without sufficient protection. They pointed out that novice users or rapid shifts in prices may result in sharp losses.
In absence of explicit legal guidance, concerns have been voiced about damage to retail investors. Under this pressure, Bithumb was forced to revisit lending regulations before resuming the service. The exchange was said to have consulted regulators before adding the lower leverage and loan limits.
Korea Set to Limit Leverage in Crypto Lending
The cryptocurrency sector is waiting for the issuance of South Korea’s inaugural virtual asset lending guidelines. They may be issued as early as this month. Analysts are anticipating the new guidelines to provide explicit leverage constraints possibly akin to the stock market’s limitations.
Upbit, another prominent Korean exchange, has already taken its own measures. It delisted Tether from its coin lending program due to legal and reputational issues regarding the use of the stablecoin in lending practices.
Analysts feel stricter regulations may enhance market stability and minimize risk for small traders. But they also feel lower leverage might minimize short-term gains among ambitious investors. As the industry enters more mature cycles, emphasis does seem to shift from explosive growth to sustainability and safety in the long term.
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