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Bitcoin’s ‘Insane’ Volatility Fueled By Massive Leverage

Bitcoin prices have been experiencing sharp fluctuations recently, generating both robust gains and sharp losses as the digital currency swings back and forth.

The cryptocurrency fell to as little as $11,202.03 shortly after midnight, down roughly 15% from the intra-day high of $13,175.69 it reached yesterday, CoinDesk data shows.

The digital currency has been whipsawing quite a bit over the last several weeks, nearing $14,000 late last month and then falling below $10,000 on July 2nd, additional CoinDesk figures reveal.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.] 

Use Of Leverage

When explaining the cryptocurrency’s intense volatility, Jeff Dorman, chief investment officer of asset manager Arca, pointed to traders’ heavy use of leverage.

“The move from $4k-$10k was based on a confluence of real factors (Yuan depreciating, the Fed, etc), but the move from $10k to $14k, and back to $10k and back to $13k, and back to $11k was all based on leverage,” he stated.

“No new money came in or out… it was just levered bets. And levered bets cause massive volatility on the way up and down.”

Joe DiPasquale, CEO of cryptocurrency fund of hedge funds BitBull Capital, also spoke to this situation, stating that “retail investors and the public, in general, have not stepped in yet, leaving only institutional investors who entered early (during Q4 2018) and whales using leverage.”

“This composition is resulting in high volatility, and it is likely to continue in the short-term (Binance just launched margin trading with 3x leverage),” he stated. 

Chris Keshian, a cryptocurrency investor and former hedge fund manager, also claimed that leverage has been driving bitcoin’s severe price fluctuations.

However, he emphasized that return of retail investors could portend sizable gains.

“While it has been an exciting year so far and crypto has performed well, this is not the ‘next big run’, as institutional capital and retail investors have not flooded into the market en masse,” he stated. 



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