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May 23, 2021

Yep

—a group of institutional/#bitcoin investors had this very convo yest. The derivatives-driven volatility not only gives SEC an excuse as u say, but it increases cost of capital for the ecosystem &delays its mainstreaming. Prob no way to stop the crazy leverage tho

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Jake Chervinsky

@jchervinsky

May 23, 2021

The speed & severity of this crash gives the SEC an easy excuse to deny this year's Bitcoin ETF proposals. Price action appears driven by derivatives trading on unregulated offshore exchanges, the SEC's big concern all along. I wouldn't rule an ETF out yet, but chances are low.

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and other owners of exchanges should reduce the ability of traders to access extremely high leverage (i.e. 125 x is absurd). This would show a lot of integrity and would be good for the space long term.

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So FWIW I don't think the very high leverage is what causes these. Any 125x position would have to be liquidated after a 75bp move, which is almost immediately; the bulk of the liquidations likely came from accounts with ~4x-20x leverage who got liquidated after the initial drop

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Yep agreed & that's why regulated futures exchanges generally cap leverage on #bitcoin at 2-3x. If #crypto exchanges disclosed payoff probabilities for your contracts, it wld likely help industry bc leverage drawdowns (such as what we just saw) increase everyone's cost of capital

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yeah pretty fair -- FWIW I think that going up to 5-10x (at least for maintenance margin) has real value; it's much more capital efficient. I think beyond 3x initial -- 10x maintenance there isn't a whole lot of additional value on higher leverages.

8:01 PM · May 24, 2021Twitter Web App

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