xrp crypto value

Crypto Crash: Experts weigh in as leverage drives market both ways, including XRP

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We spoke to thought leaders from Advanced Markets, FXOpen and Equiti Capital to confirm their view on what was behind last month’s crash as it is unlikely to be the last.

It’s June. We’re past the May market crash that surprised (and panicked) many crypto traders. As we head into the weekend, the only market that’s open 24/7 is getting all the attention.

With most cryptocurrencies in the red today, we decided to review the crypto crash last May and stress that the trading industry is heading into the new asset class for the same reason the market has taken a temporary hit: volatility.

Bitcoin alone saw traders liquidate nearly $12 billion in leverage positions in the last week of May, with about 800,000 crypto accounts blown up in the process, according to bybt.com.

As usually happens in highly leveraged markets, upward movements are consolidated, but the same happens in bearish spirals. Selling generates more selling until the system finds a balance.

From their highs, the largest cryptocurrencies by market capitalization (according to coinmarketcap.com) – excluding stablecoins – have fallen rapidly and hard.

Bitcoin (BTC) fell from 65,000 to 30,000, Ethereum (ETH) fell from 4380 to 1732, Binance Coin (BNB) fell from 692 to 212, Cardano (ADA) rose from 1.77 to 1.26, and Dogecoin (DOGE) fell from 0.74 to 0.22, Polkadot bleed (DOT) from 49.75 to 13.81, and Polygon bleed (MATIC) decreased from 3 to 0.75.

Ripple’s XRP comes out as a particularly interesting case. The cryptocurrency XRP lost two-thirds of its value, from 1.96 to 0.65, at a moment when most exchanges decided to restrict the trading of the instrument for the time being due to the SEC lawsuit against Ripple.

Since the complaint was filed in late 2020, the SEC has confronted angry XRP holders, who feel that their rights are not protected. John E. Deaton, an attorney for XRP holders who filed a motion to intervene in court, suggested holders — or investors, depending on the answer to the question “Is XRP a security?” It is being targeted by the Securities and Exchange Commission.

Therefore, with the cryptocurrency exchange banning XRP trading, trading volumes are likely to decrease. As it turns out, XRP is the fourth most traded digital asset on Kraken (an exchange that has also suspended XRP trading in the US) and elsewhere.

This is the result of margin trading in cryptocurrencies, which is particularly prevalent in jurisdictions in the Asia Pacific region. According to the 2021 Cambridge Crypto Asset Measurement Study, APAC exchanges offer much greater leverage.

“While this allows for larger gains in speculative trading, it also significantly accelerates losses,” said Natalia Honek, Head of Revenue at Advanced Markets.

“The type of volatility that we see in crypto assets is uncommon with respect to traditional financial instruments, and due to the combination of lower liquidity than traditional assets and higher volatility, excessive crypto trading has a greater chance of creating a cycle or trend, and ultimately driving the price of the crypto asset lower.” .

Natalia Zakharova, Head of Sales at FXOpen, said that the cryptocurrency crash came as an unpleasant surprise to asset owners despite the long-awaited high volatility. The second book model comes to mind when discussing high leverage accounts and blown accounts.

“I have some serious doubts about how places offering 1:100 leverage on cryptocurrencies will cover their positions. I see more damage in retail investors who flock to buy cryptocurrencies expecting their uptrend to continue forever and ignoring all the risks involved.”

The FX industry has adopted new and lower limits on leverage as a result of the new rules on CFD products introduced by the major regulators around the world: ESMA, FCA and most recently ASIC.

Cryptocurrencies have become very popular among retail customers, especially since the outbreak of the pandemic with more people turning to cryptocurrency trading to try to make an income.

“The massive growth seen in cryptocurrencies between late 2020 and April 2021 is largely due to big players like Elon Musk supporting the market, but retail traders have been keen to ride the wave higher as well,” said David Madden, market analyst at Equiti Capital.

“Margin trading has helped retail traders get exposure to cryptocurrencies but as we saw in May, cryptocurrencies have suffered a painful decline. The crash of cryptocurrency last month has highlighted the risks associated with using leverage to trade assets. Retail traders should be aware that leverage can accelerate from the height but it also falls down.”

The underlying value of cryptocurrencies, or the lack thereof, has no place in this discussion. We are still at a time when the question “Is Bitcoin a bubble bursting or is the currency maturing?” Valid, but it is the market that ultimately determines the price.

Popular futures trader Peter Brandt recently stated that there is a 50-50 chance of bitcoin either being around $1 million or zero. Cryptocurrencies are down today. Tomorrow we’ll see.

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