Bitcoin 2021: Leverage, Volatility And Other Takeaways

Last week I traveled to Miami to attend Bitcoin 2021, the world’s largest crypto conference. Around 12,000 people attended this year. It was an amazing experience. I met fascinating people, learned a ton, and discovered many innovative companies doing good work.

Despite all the drama happening around Elon Musk and bitcoin’s price, I came out of the conference more excited about bitcoin than I’ve been in a long time.

Today I’m going to discuss two of the hottest topics from the conference. (Note: If you want to watch the main stage presentations, Bitcoin Magazine has made them all freely available on Youtube). 

Too Much Leverage

There’s no getting around it: crypto’s recent volatility has been brutal. This correction was sharper and faster than any we saw during the 2017 bull run. 

(It’s worth noting that there was a worse drop in April of 2013 during that bitcoin bull market. At the beginning of April 2013, bitcoin traded around $220, then fell to $70 by mid-month before resuming its upward climb to a peak of more than $1,000 that cycle. Nevertheless, the recent drop is acute and the scale of everything today is much larger.)

One of the reasons for the heightened volatility this time is the increasing use of leverage. Both retail and professional crypto traders across the world have been using leverage in an attempt to pump up their returns. For example, if you have one bitcoin, at many exchanges you can trade as if you had three, four, or even more than 100. Leverage has become so easy to access, almost anyone can use it.

The problem with this is that if bitcoin moves down 20% and you’re leveraged 10 times long, your account can easily get wiped out. Exchanges will automatically liquidate a position if it goes down too much. As CNBC explained… 

Bitcoin traders liquidated roughly $12 billion in levered positions last week as the price of the cryptocurrency spiraled, according to bybt.com, a cryptocurrency futures trading platform.

“Selling begets more selling until you come to an equilibrium on leverage in the system,” says JMP’s Devin Ryan.

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How I Got to the Conference

A month ago, I wasn’t expecting to be at Bitcoin 2021. But a few weeks back I was invited by HIVE ...

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