$BTC LEVERAGE IS A DISASTER IN THE MARKETS

I think I've said it enough times: don't use leverage, don't try Futures, you'll only lose your money. I can assure you of that. But that's not what I want to talk about this time. I want to talk about the impact of leverage on movements in crypto markets. Pay attention, as this is crucial to understand.

First, understand how leverage works: Imagine you open a trade to buy with $100 with 10x leverage, it will act as if you had $1,000. How does this work? The exchange (like Binance) will simply lend you $900 and in exchange for that, if the price drops 10% (so your $1,000 becomes $900), your position is automatically closed to prevent you from going into debt with the exchange. You are what is called "liquidated."

When you get liquidated on a long position, at the time of your liquidation, a market sale is instantly created: this means that your remaining $900 is sold so Binance can get its money back.

Now, let's take this phenomenon and apply it on a much larger scale: let's imagine that 10,000 people go long with 10x leverage on BTC at 3 different levels: at $65,000, $67,500 and $70,000. Now, imagine the price drops to $63,000, that is -10% from $70,000. Those who entered will be liquidated and thus trigger massive sell-offs in the market, which will strongly pressure down the price of BTC, which will then drop to $60,750 due to massive liquidations, which will trigger the liquidations of those who entered at $67.5. k, and so on... This is called cascading settlements.

When too many people enter the market with leverage, it creates the risk of very strong and rapid liquidations, which can create "flash drops", that is, moments of a few minutes in which BTC can lose -20 or -25% . You can collaborate with a TIP since it would help me, follow me, and subscribe for more information