Crashes and bitcoin trading stop. Is the margin to blame?

[ad_1]

Bitcoin is currently down around 11%, from a price of $ 52,000 to just under $ 47,000. He fell as much as 18% today before rebounding, but resulted in a number of trades with him.

Don’t miss the way smart money plays the crypto game. Subscribe to our premium newsletter – Crypto Investor.

https://www.tradingview.com/symbols/BTCUSD/?exchange=BITSTAMP

Bitcoin’s significant slide caused an increase in traffic to exchanges as people looked to sell their crypto or buy more during the downturn. Coinbase told its users that it is “experiencing a degradation in the performance of our transaction services” and that “funds can be delayed and transactions can be canceled at high rates.” Reports of problems with other exchanges like Gemini, Kraken, and Binance have also flooded crypto-Twitter.

GEMINI: TEMPORARILY ENTERING FULL MAINTENANCE PERIOD

KRAKEN: SOME CLIENTS EXPERIENCING DELAYS WHILE USING INSTANT FUNDING METHODS

COINBASE: AWARE TRANSACTIONS ARE CURRENTLY DELAYED OR CANCELLED AT ELEVATED RATES

Shitty crypto exchanges don't want you to buy the dip

— Alex Krüger (@krugermacro) September 7, 2021

Imagine if Coinbase actually worked during market volatility

— zerohedge (@zerohedge) September 7, 2021

The problems angered many clients who simply could not access their money in a time of high volatility. People started to blame a number of things, including market manipulation, but the most likely cause of the flash sale was over-leveraged positions in margin accounts.

Many exchanges allow customers to trade with huge margin rates. For example, exchanges like Huobi and Bybit allow their clients to have a margin of up to 100x. This means that if a client invests $ 1, these exchanges lend them an additional $ 99, which allows them to use a value of $ 100 to trade.

These margin rates are significantly higher than those of traditional brokerage houses and they can perpetuate volatility in either direction.

The bloc’s research director, Larry Cermak, said he believes the current liquidation is healthy, as it removes over-leveraged dangerous margin positions from the market.

More than $2.6 billion worth of positions liquidated in the last hour. Most on Bybit as usual. $1.1B in BTC, $700M in ETH. If you ask me, a perfectly healthy leverage flush. Funding rates on alts were spiking too much pic.twitter.com/cvwPo4W0GD

— Larry Cermak (@lawmaster) September 7, 2021

The top two trades on this chart with the biggest sales in this crash are Bybit and Huobi. These exchanges also allow the highest margin rates in crypto. In fact, Bybit is a margin-only platform.

All margin accounts must remain above a certain amount. If the value falls below this level, the account holder must either add more funds or liquidate the assets. If many people have opened risky margin accounts on the same asset, it is possible to have a cascading sell effect where many margin positions are liquidated at the same time during times of extreme volatility.

As the graph shows, Bybit alone was responsible for nearly $ 1 billion in liquidations. This effect can also occur if enough traders have set stop-loss trades around a similar price, although margin seems to be more responsible for the speed of this sell given the number of closeouts that have occurred on Bybit and Huobi.

Many traders often attempt to buy an asset when there is a rumor of an announcement and then sell when the announcement actually occurs. Traders likely started investing in Bitcoin during the period before Bitcoin became legal tender in El Salvador only to sell on the day it was enacted. This likely lowered the price of Bitcoin just enough to trigger liquidations on margin accounts, further perpetuating the crash.

[ad_2]