On May 19, the market fell very sharp, and top 10 Cryptocurrencies such as BTC , Eth, Doge have fallen by 40%. Around that time, the market liquidation volume also reached a new high for a while. It is true that the advent of the bull market has caused many digital currencies to rise, and this has also made some people eager to try leveraged contracts. Although the contract market has continued to strengthen the stability of the system in the past few years, the occurrence of pins has been greatly reduced, but due to extreme market conditions are also prone to Downtime. Huobi, Binance, and coinbase are all experiencing difficulties in trading. Many investors who are eager to buy bottoms have not been able to buy low prices coins.
Bull market leverage is a dangerous thing. Although the bull market has a very high probability of currency price increases, from a market perspective, there must be a certain downside callback area, which is mainly related to leverage and capital utilization. We all know that capital is an important force that drives the market upward. We assume that there is a certain amount of funds on the market. At this time, we set the currency price as the initial value, and then leverage is an important force that drives continuous price fluctuations. When leverage is added, the amount of funds can be manipulated in nominal terms will increase, bringing huge profits to speculators. Once some of these speculators are higher than the initial value and cash out, then speculators in the back will inevitably need to deal with this. Part of the profit comes to buy the order, so the final outcome is that the price will fall, so that the currency price will be lower than the initial value, thus causing a decline. In other words, a correction or a sharp drop is a must in the bull market. This is also a normal thing. There must be a deleveraging process in the market, so that most of the long positions will burst and then return to a new equilibrium point.
Where is the risk of leveraged investment?
For investors, the risk of leveraged investment is very large compared to the spot market. Of course, since last year, major exchanges have introduced the problem of position loss caused by leveraged liquidation. A product like leveraged tokens, but in essence, whether it is leveraged or leveraged tokens, in fact, it is not good for long-term investors.
This is because the leverage setting itself is a short-term investment strategy, not a long-term strategy. From a small cycle, there will generally be a process of rising, falling and oscillating. For leverage, if you choose to open long, you must eat the rising part of the market to avoid falling and volatile markets, so that you can get the final profit and also same strategy for shorting.
Unless you are a hedging user, you can choose to take low leverage for a longer period of time. Generally speaking, leverage is suitable for short-term operation. In traditional financial markets, leverage is basically held overnight unless the volume is particularly large. In other words, open a position today and close it today. If you hold a position overnight, either the next day, there will be no positions, or there will be no positions. Therefore, most small position traders, especially positions that cannot affect market conditions, will not choose to stay overnight. In the cryptocurrency circle, many people are basically using leveraged contracts for several days. This will naturally bring more risks.
For leveraged tokens, although there will be no liquidation, it will eventually lead to overall losses due to long-term price changes. For example, the initial currency price is 1 dollar. When you go long with three times leverage, A week later, the currency price is still 1 dollar, but your leveraged tokens have begun to be far below 1 dollar. So, leveraged tokens is not good for investors.
DEFI lending provides tools for large investors to cash out
In fact, if you just talk about leverage, you must first understand whether you can bear the risk of leverage. This also includes DEFI pledge. DEFI is essentially a way to increase leverage. When we pledge 1 ethereum to a smart contract, At the time, we get loan 2000usdt, but if the market price drops, there may be insufficient collateral value, then the contract will ask for a position to be filled. If the position is not filled in time, then our ETH will also be liquidated, but such liquidation is relatively For DEFI, there is an advantage, that is, the currency in the account will not return to zero. That is to say, if the 1 ethereum is liquidated, the 2000 usdt we loaned out still exists in the account. Of course, this also depends on the execution process of the contract. If some contracts lock the account balance, it will not work, but if we loan out and If 2000usdt is taken away, it will not have much impact. In this way, the smart contract tool will provide a good strategy for large-scale cash out, that is, high-fold pledge, and then withdraw the pledged stablecoin, so as to achieve an operation similar to selling.
In the end, more people may be concerned about how to avoid asset losses caused by the market decline. In fact, there is no good strategy here, but as a prudent investor, Have a stable source of income and wait patiently for value coins. A stable source of income is generally a good way to buy mining machine computing power to mine. Bull market makes money, and bear market makes money. The other is naturally to stay away from speculation, stay away from leverage, and be a friend of time. You must always realize that the current cryptocurrency is still in a very early stage. Therefore, if you can stick to it, it is a success, crossing the bull and the bear, and finally enjoying the market development.
