Don't DO THIS in CRYPTO - Leveraged trading might sound great but involves a huge amount of risk. Today we saw a sudden drop in ETH prices on Bybit, caused by a chain of liquidations leading to a flas...
Don't DO THIS in CRYPTO - Leveraged trading might sound great but involves a huge amount of risk. Today we saw a sudden drop in ETH prices on Bybit, caused by a chain of liquidations leading to a flash crash.
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AI Analysis
Leveraged trading in crypto is one of the quickest ways to lose all your money, despite being heavily promoted by some influencers as a path to massive wealth. A recent flash crash on Bybit, where Ethereum's price dipped drastically for a moment only to recover, serves as a stark example of how leverage can wipe out an entire account instantly due to cascading liquidations. While leverage can be a powerful tool, it's often pushed for profit, not for traders' benefit, making caution and understanding crucial.
Here’s why you need to be extremely careful with leveraged trading in crypto:
* Leveraged trading is portrayed as an easy way to make huge profits, with promises of turning small amounts into fortunes using 100x gains. The presenter emphasizes this as a dangerous illusion promoted by "unscrupulous YouTubers." * A recent ETH flash crash on Bybit highlighted the extreme risk: the price of Ethereum suddenly dropped significantly, only to recover almost immediately. This seemingly minor, fleeting dip can completely bankrupt leveraged traders. * When you’re on a leveraged position, even a split-second market move against you can trigger an automatic forced sale by the exchange, known as a liquidation. There are no warnings or second chances; it happens instantly, often leaving you with nothing, even if the market quickly recovers. * Liquidation events can trigger a "chain reaction" or "cascade." For instance, a small 2% dip can liquidate a 50x leveraged position. The forced selling from these liquidations pushes the price down further, causing 20x, and even 5x leveraged positions to also get liquidated, creating a domino effect that drives the price even lower in a very short amount of time (often within 30 minutes). * There are sophisticated traders who intentionally cause these market manipulations, known as "liquidation hunts." They trigger the initial dip, knowing it will cause a cascade of liquidations, and then place orders at extremely low prices (e.g., $485 for ETH) to buy up the liquidated assets at a massive discount (like 20% off). This means some people profit directly from the losses of unsuspecting retail traders. * While extreme leverage is dangerous, the presenter clarifies that not all leveraged trading is inherently bad. It is a powerful tool that can be used effectively for certain strategies or to protect positions. However, the critical takeaway is that the risk of a sudden, wiping-out event is very real, even if your market prediction is correct. * The presenter personally avoids heavy leverage because of these risks and urges others to understand the risks and consider "deleveraging" if the risk becomes too high. * One surprising insight is the aggressive push for leverage trading by exchanges, often through affiliate programs with influencers. Exchanges like Bybit explicitly try to get YouTubers to promote leverage trading, as the more leverage and trades users make, the more fees are generated, directly benefiting both the exchange and the influencer. Some influencers reportedly make millions per quarter from these affiliate revenues. * The presenter believes it’s crucial for people to understand how these events happen and why leverage is so heavily promoted. Knowing that a sudden market movement can wipe out an entire account, even if your underlying market prediction is correct, is powerful information that allows individuals to make informed decisions. * It's important to share this knowledge to warn others against reckless leveraged trading and to help them avoid losing money unnecessarily.
Transcript
All right, guys, today we're going to talk about one of the easiest ways to lose money in crypto. That's right, lose money. And the worst part about this is that there are so many unscrupulous YouTubers out there promoting this method. They're literally telling you this is the way to do it. And unfortunately, it's one of the, and we have an example here, it's one of the easiest ways to actually get totally wrecked in crypto, just lose everything that you have. So you probably guessed it, it's l...
All right, guys, today we're going to talk about one of the easiest ways to lose money in crypto. That's right, lose money. And the worst part about this is that there are so many unscrupulous YouTubers out there promoting this method. They're literally telling you this is the way to do it. And unfortunately, it's one of the, and we have an example here, it's one of the easiest ways to actually get totally wrecked in crypto, just lose everything that you have. So you probably guessed it, it's leverage trading. So you've probably seen this a lot of times, there's a lot of promises by a lot of people in crypto saying, Oh, guess what, you can turn $1,000 into a million dollars, right? And who doesn't want to do that? Who doesn't want to have a million dollars? Who doesn't want to drive a lambo? And they're pushing this idea of leverage trading a lot, because with leverage, you can 100 extra gains, right? Why make a dollar when you can make a hundred? Why make a hundred when you can make 10,000? Why make 10,000 when you can make a million, right? It makes perfect sense. But of course, it's extremely risky. And I think the biggest, like, and I'll show you examples, some examples that people don't even think about when they first start. One of the reasons why for today's video is this shocking crash or the pseudo shocking crash here. So I saw this post. I'm not trying to target this exchange in particular. This is on Bybit. But you just see the sudden dip in the price of Ethereum and it instantly goes up. And it's this exact type of action that would completely bankrupt people. Like they'll lose all their money. And why is that? How does this happen? Well, this happens mostly because when you're on a leverage position, when you're using that leverage, when you want to make those massive gains, the side consequence is that if the price of a currency drops, if the market doesn't move your way, even for a split second, even for that split one minute, if it doesn't move your way and it just drops, the exchange forces you to sell. And normally, I think a lot of people, a lot of beginners, they think, oh, you know, the exchange forces me to sell this liquidation event. It's a big event. Don't call me beforehand. They'll be like, oh, yo, you're about to be liquidated. Maybe you should just add your money in. There's just second chances in this way. There's warning signs. Nope. Honestly, in crypto, this happens immediately. When a currency price dips, let's say, let's say, for example, this is for Ethereum USD. So we all know we're all very bullish on Ethereum. We all think it's going to go up. But if you're on a leverage long position, you think it's going to go up, you're on this long position, you take that long. Now, if the prices start dipping like this drastically, let's say if it just dips down to here, 50X leverage positions will be liquidated. Then it causes like cascade. Oh, right now, 20X positions. I calculated this. If it just dips below 500 like this now, even positions up to 5X. So even if you think you're not very leverage, you're on a 5X position, you could be liquidated in this situation and you can lose your entire bit of crypto. And to add insult to injury, obviously the market recovers as if nothing happened. So you're basically left there logging into your exchange account and finding that you have virtually nothing in your account. If you're on a leverage ETH long here and for some reason, you know, this strikes and hits you, you'll actually be left with nothing on your account. That's crazy if you think about it, right? And the worst part is obviously you see that Ethereum prices are maybe even going up in the next hour. So that's pretty much the warning, but I'll do a little bit of explaining about why this happens and how this can be triggered and why this is very common in crypto. So why does this happen? Well, it happens because of a chain reaction of events. So you guess you have to like super traders, burr traders, or gamblers, they can take a 50X position, right? So this is quite common. It's for some reason, it's very popular in crypto, right? So taking 50X leverage, you can make this massive 50X gain. But the problem is if a currency dips by 2%, that's going to cause you your entire position to be liquidated, right? So if it dips by 2%, you lose everything. If it goes up by 2%, you double your money, right? So this is the kind of the up and down. But the problem here is that if you get liquidated, the exchange needs to sell your position ASAP. Now, if they can't find a buyer, right? If no one wants to buy that position up, you know, it has a forced position down even more. You have to go down to lower and lower prices to sell that. So this is what happens when it cascades, when this kind of the first kind of rock is thrown, it leads to these guys getting liquidated. Then when these guys get liquidated, they need to sell. So it pushes the price down even more. And then your 25X guys get liquidated too, right? Because the price just keeps going down, cascading down. So it causes this chain reaction where every time the price just hits down, people get liquidated. And the liquidation causes the price to go down even more. So this is kind of why you see this giant spike here. Pretty much, it's just a chain reaction. It happens within 30 minutes. It's extremely fast. And a lot of times, honestly, it's because people don't have time to respond to this, right? Like the chain reaction happens so quickly. And because these exchanges are so fast at liquidating and basically causing the prices to go down, this is kind of like analysis. And by the way, thank you guys for posting this on my Telegram group and bringing this to my attention. But this is a kind of like, this was real price action on Bybit, maybe a liquidation hunt. Basically, Bybit, but Bybit EF books just got raped. 30 million markets sold causing a 20% wick down to $485. Some guy just got filled for 1.5 million at 518. All right. So what does that mean? Well, it means that there are people, all right, let me just move this down, move this here a little bit, people who want to cause this and buy up currency for the cheap. So what they do is they place orders at these very low levels, maybe 500. They place orders down here. So they're just kind of waiting for this kind of cascading event to happen for everything to dip. And then they place these orders here. And they basically get a huge discount, like a 20% discount on Ethereum. So there are people who intentionally kind of cause this initial stone to trigger. And they can more or less calculate how leveraged people are on this exchange. So they can find the perfect timing to trigger such an event and also figure out when to buy it up. So people can cause this, get a discount essentially at the loss of retail or people who are just, you know, kind of trading on the exchange. So now after watching this, you probably might think, oh, all leveraged trading is bad. And this is exactly why this video is also extremely hard to make as well, because not all leveraged trading is bad per se. Leveraged trading is an extremely powerful tool. It can mean you can protect you in certain situations. And I've known a lot of really good traders that make very good use of it. So I think it's incorrect to say it's a blanket statement that this video is a blanket statement that all leveraged trading is bad. First up foremost, I wanted to make the warning that something like this is possible where you have a chain liquidation event and where it's extremely possible to be correct in the direction of your trade, but also get destroyed by all of these sudden bursts of market movements and that might even be isolated on an exchange. So it's just more caution. It's deleveraging if, you know, the risk is too high and the risk is there. So one, I think the first and foremost is just kind of abolish the idea that just easy money leveraged trading. Personally, for me, I don't use heavy leverage at all. And I think this is probably one of the reasons for it. Now, I've also had a good discussion with Sam Bankman-Fried from the FTX exchange, and I explicitly asked him, you know, what is the purpose of, say, a 100x leverage and also what kind of safety margins and liquidation policies they have. And I think this affects different exchanges differently. So I highly advise you to just take a look and kind of broaden your understanding of what happens when in this whole derivative trading space. And just to throw this in, so why do people push leverage trading a lot? Well, it's because people get a lot of money from it. So this is just recently, I got three emails from Bybit. They're basically telling me, yo, I'm wondering if you're interested in becoming an affiliate partner at Bybit or are you already? I don't see an affiliate link on Bybit under your YouTube. Why aren't you shilling the crap out of Bybit? I literally got this email, like three, from different managers. They're all kind of maybe freaking out that I'm not part of their Bybit circle. Okay, let's be honest here. So the reason why this gets showed a lot on YouTube is because of the affiliate revenue. Essentially, people who sign up with this affiliate link, they get rewards off every trade. And because it's leveraged, the more leverage you take, the more you trade, the more fees you generate, the more people make. So both the exchange and the influencer or whatnot makes that amount of money. So it's kind of crazy. In fact, I've heard that there are certain people on indie crypto space that make like a million dollars per quarter on this stuff. It's nuts. But at the same time, they have a huge incentive to try to get people to trade as much as possible. I don't want to degrade every YouTuber's work on this. I think that's unfair. And I think that's happening throughout this community where people just blame others for their own problems, I guess. But at the end of the day, knowledge is power. And knowing that such an event can trigger huge losses, potentially an entire sub-account or account getting wiped out, it's just an understanding. And going forward with this information, I hope that can lead you to make your own good decision. So anyways, that's the point of this video, guys. I hope you liked it. And if you guys think it's helpful, please do share it with people. I really hate to see this happen. I really hate to see people losing their money recklessly. Share it and warn people if they are exhibiting signs of kind of over-leverage in this situation. So guys, thank you guys so much for watching this video. Remember to click the like and subscribe button as well. We make plenty of educational videos on this channel too, so make sure you're up to date on that. And we have live streams as well every Monday and Friday, Hong Kong time in the morning, which is kind of the reverse time of everyone else. But anyways, those times are up there. And well, I'll see you in the next video.
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