Lessons of Over Leverage Trading....

When crypto crashed yesterday the first thing I ponder about was who could have blown up their accounts. The first people that come to mind are the one's who use leverage when trading.

Bybit which is an crypto exchange that allows shorting crypto and leveraging trades had some interesting data on how much crypto funds based on $USD denominator had to be sold in order due to traders lack of funding. A whopping $1.1 billion in assets were liquidity in the past 24 hours. Although its just a drop in the bucket compare to the overall crypto marketcap it is still staggering for one day. The $1.1 billion removed from exchanges meant that some traders had to sell or force to sell their positions to compensate for the crypto draw down.

Where there is a Seller there is also a Buyer

https://www.bybt.com/LiquidationData has an nice overall in flows and out flows to crypto exchanges and it is clear that the recent BTC dip was bought and bought pretty aggressively. This is confirmed by the large green candle.

Those who had to sell due to over leveraging their trades were likely bought by others who are chasing BTC and cryptos upward. The recent buying candle based on Bybit indeed shows a lot of buy volume. This is likely a good sign that BTC has bottomed or is already in bounce face.

Trading with leverage will amplify gains and losses. It is not ideal to leverage trade if you can not afford to lose what you invest in. Often by doing a leverage trade the trader has more of a chance to blow up their account than to obtain massive wealth. Not to say leverage can not reap rewards, however the risk of losing more than one has is holding is real and the recent crypto draw down is proof. A lot of money was lost by many small investors, we just see the statistics of it. Like the old saying goes, do not try to be a statistic.

Thanks for reading and let us all keep hodling.

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