Bitcoin bull and BKCM CEO Brian Kelly believes that margin trading is the main reason why cryptocurrencies experience such volatile price swings, CNBC reports. The top cryptocurrency recently dropped to the $10,500 shortly after surging to almost $14,000.
Turning crypto into gambling
Many Bitcoin naysayers compare crypto to gambling (including Warren Buffett). Even the most enthusiastic Bitcoin bulls cannot argue with that statement considering that some cryptocurrency traders are willing to open 100x leveraged positions.
Kelly explains that crypto traders started borrowing more money after the price of BTC suddenly went up. Hence, it made it more expensive to go long on Bitcoin.
The same opinion was voiced by Genesis Global Trading CEO Michael Moro:
The presence of leverage exacerbates the moves in both directions and affects the speed dramatically,” he told CNBC.
More exchanges upping the ante
While it’s clear that margin trading increased volatility in the market, more cryptocurrency exchanges are actually willing to embrace it.
Binance, the biggest exchange by trading volume, has recently rolled out the long-awaited margin trading option with a maximum 1:3 leverage.
Such exchanges as BitMEX and Bexplus allow their traders to use an eye-popping 1:100 leverage.
The slightest move in the wrong direction can lead to liquidation, but the prospect of potential profits seems too exciting for risk-loving traders.
As reported by U.Today, Bitfinex’s CTO Paolo Ardoino also confirmed that the exchange will soon enable 1:100 leverage for verified users.