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Leverage Is Inflating Cryptocurrency Volume Numbers

Coin Codex 2020-01-14 17:27:18

Key highlights:

  • Highly leveraged cryptocurrency trading is presenting an inflated picture of trading volumes
  • Leveraged trading provides the opportunity for bigger profits, but also comes with the possibility of bigger losses

Leverage is not a bad tool by itself. In fact, without it, many investors may find it difficult to successfully participate in trading activities. With leverage, traders who have fewer funds can engage in bigger trades and also make meaningful profits during smaller price movements. Leveraging ratios determine the size of positions traders can enter and they can be as high 100x or 125x. The use of leverage has its downsides as well. In the same way that it can maximize a trader's profit, it can also bring about devastating losses.

Now, considering leverage from the exchange aspect, the bump in an exchange's trading volume is likely to be as a result of the inclusion of leveraged trading. By the inclusion, the exchange's volume appears more impressive than it is.

Volumes are mostly a function of leverage - see what Bitflyer's did last year when the FSA reduced max leverage from 15x to 4x on the 28th of May pic.twitter.com/eGa9VCFiKx

— skew (@skewdotcom) January 13, 2020

Can anything be done to stop this?

The fake volumes from exchanges probably started as a business strategy, but truth be told, it has now become a menace in the crypto space. Now, a number of exchanges and projects are rising up to put an end to it. The exaggeration of figures from exchanges tends to paint them in a bad light and make them look untrustworthy.

This problem has not gone without the notice of top agencies like the United States SEC who revealed that up to 95 percent of all Bitcoin trading volume is falsified. Carylyne Chan, CoinMarketCap Chief Strategy Officer, has stated that the fight to stop the report of fake volumes is already underway.

Crypto leveraging dangers

Using Binance as a case study, many of the top altcoins listed by the exchange have been made available for trading with leverage of up to 75x. The exchange also appears to be doing well in the derivatives market, going by the numbers being it's putting up. Just last week, a volume of $20 billion was realized in one day from Bitcoin futures across all exchanges and in light of the false volume reports going on in the crypto industry, one cannot help but question if the figure is real or another effect of leveraging.

A country like Japan is already mounting pressure on exchanges against the use of high leverages in cryptocurrency trading. Soon, the FSA in Japan will place an embargo on any leverage that exceeds 2x in cryptocurrency margin trading. It is expected that this move will bring about a crash in the volume of exchanges.

Leverage Is Inflating Cryptocurrency Volume Numbers

29 minutes ago | Adedamola Bada

Key highlights:

  • Highly leveraged cryptocurrency trading is presenting an inflated picture of trading volumes
  • Leveraged trading provides the opportunity for bigger profits, but also comes with the possibility of bigger losses

Leverage is not a bad tool by itself. In fact, without it, many investors may find it difficult to successfully participate in trading activities. With leverage, traders who have fewer funds can engage in bigger trades and also make meaningful profits during smaller price movements. Leveraging ratios determine the size of positions traders can enter and they can be as high 100x or 125x. The use of leverage has its downsides as well. In the same way that it can maximize a trader's profit, it can also bring about devastating losses.

Now, considering leverage from the exchange aspect, the bump in an exchange's trading volume is likely to be as a result of the inclusion of leveraged trading. By the inclusion, the exchange's volume appears more impressive than it is.

Volumes are mostly a function of leverage - see what Bitflyer's did last year when the FSA reduced max leverage from 15x to 4x on the 28th of May pic.twitter.com/eGa9VCFiKx

— skew (@skewdotcom) January 13, 2020

Can anything be done to stop this?

The fake volumes from exchanges probably started as a business strategy, but truth be told, it has now become a menace in the crypto space. Now, a number of exchanges and projects are rising up to put an end to it. The exaggeration of figures from exchanges tends to paint them in a bad light and make them look untrustworthy.

This problem has not gone without the notice of top agencies like the United States SEC who revealed that up to 95 percent of all Bitcoin trading volume is falsified. Carylyne Chan, CoinMarketCap Chief Strategy Officer, has stated that the fight to stop the report of fake volumes is already underway.

Crypto leveraging dangers

Using Binance as a case study, many of the top altcoins listed by the exchange have been made available for trading with leverage of up to 75x. The exchange also appears to be doing well in the derivatives market, going by the numbers being it's putting up. Just last week, a volume of $20 billion was realized in one day from Bitcoin futures across all exchanges and in light of the false volume reports going on in the crypto industry, one cannot help but question if the figure is real or another effect of leveraging.

A country like Japan is already mounting pressure on exchanges against the use of high leverages in cryptocurrency trading. Soon, the FSA in Japan will place an embargo on any leverage that exceeds 2x in cryptocurrency margin trading. It is expected that this move will bring about a crash in the volume of exchanges.