A gentle reminder: Short term price action is subject to leveraged traders who do not reflect the rising tide of HODL gang. Hold the line during expiration periods and know how leverage and options trading work. (Long Read)
For those of you who invest responsibly and don’t gamble with leverage, remember that some exchanges will spot 101x leverage to their clients. This means that some fool with $10,000 dollars can impact the BTC future’s market as if they had $1,000,000. The future’s market is a primary data point for algorithmic trading, so when someone sinks a $1,000,000 leveraged short it negatively impacts the spot price of BTC.
This becomes more relevant during specific periods because of the way future’s contracts resolve, such as at the end of the month and year respectively. The most aggressive trading entities collect as much information on leveraged positions as they can and analyze the market like a house of cards. So what’s up right at this moment in BTC?
Our price action for the end of March, without leveraged longs and shorts is probably about 55k. March is traditionally a red month for BTC but around 59k we were running a large volume of leverage longs. Some investing entity that sees a price of 59k as being premature takes out a leveraged short to profit from their perceived likelyhood of a natural pullback to say, 55k and the house of cards dynamic is on. As more of these leveraged, margin traders pile into the market it becomes more volatile, specifically because of their margin requirements and subsequent liquidations.
Finally, “manipulating the market with strong data and leveraged longs or shorts”. When I observe the price to be above or below my predicted “real value” level, and when I can see or predict the entries and exits of heavy leverage, I can then estimate the prices at which certain positions will be margin called and liquidated. If my information is perfect, I can create an avalanche effect, whereby I see that putting down some number, like $15,000,000 short, with 101x leverage, will create a cascading effect of liquidations bringing the price to its “real value” point of maximum stability and then dragging it lower based on momentum and panic selling.
When all goes well, whether I was long or short, the market moves past my predicted point of price stability and that’s where I can make a shit load of gains. If target was 55k and momentum supports a bear run to even 53k, I just need to try to cover at anything below 55k while being especially reactive at 53k.
TL:DR - Know when futures contracts expire end expect increased volatility. Leveraged trading allows high information traders to have huge influence on short term price action. Don’t use leverage if you don’t have an edge on the market. Don’t panic sell or FOMO big swings that happen during expiration run ups.
And for a bonus: don’t lend Bitcoin if you don’t want people to be able to borrow it to short sell.
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