> Because you can't go below zero. There's a floor to how much you can lose, and it's "everything you've put in", not "everything plus additional debt".
If you're leveraged, you are borrowing money, which means you can lose more than you put in as you could lose the money you borrowed and thus would owe on the debt. Further, if you are shorting bitcoin for instance, there is no floor.
Well, for starters the funding and borrow rate(s) are often positive because people just tend to be bullish. So things have to get pumped up somehow before they come crashing down, it's a much stronger tendency among the crypto faithful to be bullish than to be bearish. I also think the other commenter's insight about how gains on the short side are capped at $0 price is relevant.
So while there is downside pressure from liquidation cascades on the levered positions, the main point is that volatility in general will smooth out. The juiced up all time highs we've seen so far have been driven by leverage. Maybe BTC sells off to $12K but if there was no leverage in the system I think it would take a lot longer to bring up to $69K than it did before.
TameAntelope|3 years ago
...typically, anyway.
vageli|3 years ago
If you're leveraged, you are borrowing money, which means you can lose more than you put in as you could lose the money you borrowed and thus would owe on the debt. Further, if you are shorting bitcoin for instance, there is no floor.
zenlikethat|3 years ago
So while there is downside pressure from liquidation cascades on the levered positions, the main point is that volatility in general will smooth out. The juiced up all time highs we've seen so far have been driven by leverage. Maybe BTC sells off to $12K but if there was no leverage in the system I think it would take a lot longer to bring up to $69K than it did before.