Crypto Exchanges

Crypto investors seek damages from Binance

David Kay of Liti Capital joins The Exchange to discuss his company’s role in litigation against Binance, a crypto currency exchange. Liti seeks damages from Binance and more crypto regulation from governments. For access to live and exclusive video from CNBC subscribe to CNBC PRO:

When Canadian cryptocurrency trader Fawaz Ahmed saw the price of ethereum dropping, he knew it was time to get out. Unfortunately for him, he couldn’t.

Ahmed was trading on Binance, the world’s largest digital currency exchange by trading volume. And on May 19, Binance experienced a major outage which meant that, for about an hour, he was unable to exit his position.

That day, bitcoin and ethereum posted their biggest one-day drops since March 2020, with the entire crypto market losing roughly $1 trillion in value. When prices fell below a certain point, Ahmed’s position got wiped out. His personal losses came to about $6 million.

“This loss was not fair,” Ahmed, a 33-year-old who trades full-time, told CNBC. “This is something which was out of my control.”

Binance’s customer service team gave Ahmed an “absurdly” low offer of compensation, he said.

Ahmed is one of hundreds of investors expected to take part in arbitration proceedings against Binance, seeking damages for the money they lost when the cryptocurrency exchange went offline.

Binance said it was unable to comment on “pending legal matters.”

“Our policy is fair in that we compensate users who experienced actual trading losses due to our system’s issues,” a spokesperson for the firm told CNBC. “We do not cover hypothetical ‘what could have been’ situations such as unrealized profits.”

Binance has experienced several outages over the years in times of heightened volatility for virtual currencies. That can be costly for traders, especially when prices are plunging.

And those losses can balloon to millions of dollars when investors make risky bets using leverage, or borrowed money, to augment trades — which, on Binance, is something users do often.

Binance recently cut the maximum leverage customers can take on futures — financial derivatives that oblige investors to buy an asset at an agreed-upon price at a later date — to 20 times from a previous limit of 125 times.

Binance wasn’t the only crypto exchange to face disruption to its service on May 19. Coinbase users were also temporarily unable to access its site. Bitcoin plunged as much as 30% to nearly $30,000 that day. It has since recovered to $45,790.

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  3. Check out an exclusive YouTube interview with David Kay:

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