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NEVER Use 100x Leverage: How BitMEX Stacks The Odds Against You

After the wild success of the 100x leverage Bitcoin perpetual swap on BitMEX, other major Bitcoin Futures exchanges quickly matched …

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The post NEVER Use 100x Leverage: How BitMEX Stacks The Odds Against You appeared first on CoinDiligent.

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After the wild success of the 100x leverage Bitcoin perpetual swap on BitMEX, other major Bitcoin Futures exchanges quickly matched the same offering.

Today, most of the big crypto futures exchanges offer 100x leverage: Deribit, Bybit, and FTX, just to name a few.

However, is this truly in the best interest of exchange’s users?

For most new traders, the idea of 100x leverage sounds extremely alluring. After all, who wouldn’t want to trade with $100,000, while only having a $1,000 account.

Little do they know that 100x leverage DESTROYS any trading edge that they may actually have

The goal of this article is to outline why, in simple terms.

KEY POINTS

  • When using more than 25x leverage, the exchange’s maintenance margin is destroying your trading edge.
  • Fees are charged on the entire leveraged position, and not just your margin. Hence, fees are extremely destructive to your margin when using high leverage.
  • Big traders are incentivized to liquidate overleveraged positions and, indeed, do so regularly.

I’d like to give credit to BambouClub for most of the ideas discussed throughout the article. His excellent Medium articles about Bitcoin Derivatives are a must read for every cryptocurrency trader.

Finally, it’s important to note that this article is in no way a criticism of BitMEX. In fact, I do most of my trading there. But it’s important that traders know what they’re getting into when using the exchange.

Maintenance margin destroys your edge

BitMEX works unlike traditional futures exchanges, like the CME, where losses are technically unlimited. At BitMEX, your maximal loss is the margin that you are using in a particular position.

Hence, BitMEX needed a mechanism to ensure that losses never exceed a trader’s margin. 

The exchange’s solution to the problem is rather elegant. BitMEX forcefully liquidates a trader’s position BEFORE the margin is worth zero (also called the “bankruptcy price”).

  • If a trader is long, BitMEX sets a liquidation price slightly above the bankruptcy price.
  • If a trader is short, BitMEX sets a liquidation price slightly below the bankruptcy price.

If the market moves against the trader’s position and reaches the liquidation price, the position of the trader is automatically liquidated at market.

This difference between the liquidation price and the bankruptcy price is referred to as the Margin Maintenance Requirement (MMR).

maintenance margin chart

This is great for BitMEX, because the MMR serves as a cushion protecting the exchange from liabilities. 

But it’s highly destructive for traders. 

And most people underestimate how destructive it REALLY is.

Theoretically, if a trader is 100x long, his margin is worth zero after a 1% price drop.

HOWEVER, BitMEX already liquidates the position after a 0.44% adverse move to satisfy it’s maintenance margin requirements.

So, as you hopefully realized by now, the maintenance margin requirement when using more than 25x leverage is absurdly high. 

This significantly erodes a trader’s edge, since it liquidates a position before it would be “fair” to do so.

To avoid falling victim to high maintenance margin requirements, do not trade with extremely high leverage. This effect is barely noticeable when using less than 10x leverage.

Fees eat away your margin

Fees on BitMEX are comparatively much higher than on spot exchanges, since the fee applies to the entire leveraged position, and not just the margin used.

So, if you have $1,000 in your BitMEX account (your margin) and use it to open a $100,000 position by using 100x leverage, you’re paying the 0.075% fee on the entire $100,000 position and NOT just on the $1,000.

This means that you’re effectively paying a 7.5% taker fee on your margin (0.075% x 100x). 

Now, if you use a taker order to get into the position and a taker order to get out of the position, you will have paid a 15% fee on your margin of $1,000, which is $150.

Crazy, right?

Let’s now plot this on a chart to make it more visual.

The chart below displays the percent of your margin that gets eaten away, when using market orders to get in and out of a position, based on how much leverage you are using.

impact of fees chart

We can clearly see that fees paid when using very high leverage (over 25x), is extremely destructive to your margin.

Volatility that’s designed to liquidate

At the time of writing, the 30-day rolling average Bitcoin volatility is 2.39%. This is the standard deviation of daily returns in the past 30 days.

For reference, here’s the adverse price move that would liquidate a long:

long liquidation chart

So, if a trader is using more than 50x leverage and doesn’t PERFECTLY nail the trade, odds are that he’ll get liquidated after just a day.

BUT that’s not all.

There are days where even if the trader is right and price ends up trending in the predicted direction, the position gets liquidated first, as big traders run the market sharply up and down to shake out overleveraged traders.

This price action has been informally termed as a “Darth Maul” candle, in reference to the Star Wars character known for using a double lightsaber.

In January 2020 alone, there were 5 occasions where in a single day Bitcoin moved 3%+ from high to low only for the price to close near the daily open.

Overleveraged traders get slaughtered in price action like that.

To conclude:

DON’T trade with 100x leverage, and avoid using more than 25x leverage. 

If you do, know that odds are stacked against you.

Safe trading.

pascal thellmann

Pascal Thellmann is an algorithmic trader mostly focused on market making. You can get in touch with Pascal on LinkedIn or Twitter.

Source: https://coindiligent.com/100x-leverage-study

Blockchain

Axie Infinity Records Holders ATH: 420% Year to Date Growth

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Popular non-fungible token (NFT) gaming platform Axie Infinity continues to see increased adoption from users, following exponential growth in the number of wallet addresses.

Axie Sees Surge in Address Holders

According to data provided by IntoTheBlock on Tuesday (September 28, 2021), Axie Infinity Shards (AXS) ownership is on the rise, with 17,480 address holders. This figure represents a new all-time high (ATH) and a 420% increase year-to-date (YTD). Meanwhile, this growth is indicative of the rising popularity of Axie Infinity and play-to-earn non-fungible token (NFT) gaming.

Back in July, CryptoPotato reported that the value of the AXS token skyrocketed nearly 400% within one month, leading to a market capitalization of over the $1 billion mark. Later in August, AXS was among the assets listed on the major cryptocurrency exchange Coinbase Pro, which also gave it an immediate boost.

Axis Infinity, developed by Sky Mavis and released in 2018, arguably popularised the play-to-earn trend and has recorded a number of impressive milestones in recent times. Data from DappRadar revealed that the project recorded over $2 billion in NFT sales volume, solidifying Axie’s place as the most valuable NFT collection, thereby surpassing major names such as CryptoPunks, Art Blocks, and NBA Top Shot.

The data also showed that more than 600,000 users traded Axis Infinity NFTs, resulting in 4,887,645 transactions. The project currently boasts over 1.5 million daily active users.


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According to Jeff Zirlin, co-founder of Axie Infinity, half of the platform’s users got to interact with cryptocurrency and blockchain for the first time through Axie, while 25% of them did not own a bank account.

The Growth of NFT Gaming

The NFT industry is becoming popular with celebrities, major sports leagues, and companies buying digital art in whatever form, or selling them. However, blockchain-based games are seeing a special kind of attention.

A report by DeFiPrime stated that the NFT Gaming market has a total market valuation of nearly $180 billion as of August 2021, with the value estimated to rise to $196 billion. An excerpt from the report reads:

“NFT games may have the potential to become the standard for the gaming market if it sees enough attention and popularity. Already they have made major changes to games and made it much more fun for players. From there, it could be a very major change to the way people play games and could be as major as Doom was to the market or 3D was for environments.”

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Source: https://cryptopotato.com/axie-infinity-records-holders-ath-420-year-to-date-growth/

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Blockchain

Bitcoin, Ethereum will draw their market strength from this key aspect

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Bitcoin and Ethereum are currently surviving a bearish scare, with both assets just about holding a position above their immediate supports. For Bitcoin, the $41,000-level is establishing a strong bounceback range while Ethereum has managed to remain above $3000.

On the contrary, some altcoins have recorded strong recoveries, with Solana, Bitcoin Cash, and Uniswap hiking by more than 10% in one 24-hour window.

Now, these altcoins seemed to have the relative edge at press time. However, there are a couple of key metrics which may allow us to evaluate the actual strength of Bitcoin, Ethereum as the market goes forward.

How much importance should be given to utility?

Source: Sanbase

Over the past few years, market stability has been dependent on different aspects. During the bullish rally of 2017, investor sentiment was key and when major traders started to become bearish, the digital assets collapsed.

Then, it was constructive institutional inflows at the beginning of 2019. At the time, it was suggested that institutions can allow tokens such as BTC, ETH to hold higher price positions. The price fell in 2020, irrespective of rising interest.

However, one key idea missed by most speculators might be the utility side of things, which is presently one of the most important functionality. Gone are the days when astute marketing allowed assets such as TRON to climb into the top-10.

Now, according to Santiment, Bitcoin has hit a two-month high in terms of circulation. What’s more, if the chart is closely observed, the average BTC transferred has risen consistently over the month of September.

Source: Sanbase

Similarly, Ethereum hit a similar feat but its 1-day circulation index was at a 3-month high, indicative of high token utility and movement.

Ethereum’s price has dropped sharply over the course of the past few weeks, but circulation has remained high.

Bitcoin, Ethereum spaces have evolved

Now, to be fair, it is important to account for volatility and the fact the circulation isn’t as high as it was during May 2021. However, maintaining a development and transaction-intensive ecosystem, one which allows the price to be built on strong foundations, is eventually advantageous.

Now, with respect to the assets that have grown over the past few days, besides BCH, both Solana and Uniswap are extremely utilized tokens. While one is the native token of a major DEX, another asset is currently responsible for bringing better L2 solutions.

Likewise, for Bitcoin and Ethereum, higher utility and circulation should keep the asset relevant, and progressively exhibit significant recoveries over Q4 of 2021.

Where to Invest?

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Source: https://ambcrypto.com/bitcoin-ethereum-will-draw-their-market-strength-from-this-key-aspect

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Blockchain

Swaps.app Offering Seamless Crypto Swaps With No KYC Process

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Swaps.app Offering Seamless Crypto Swaps With No KYC Process

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Swaps.app is simplifying how users are converting Bitcoin and other cryptocurrencies by eliminating the current barriers available in the market.

The EU-regulated company is changing how people swap cryptocurrencies for money with its “swap’n’Go” approach. The platform is a user-friendly space that allows anyone around the globe to effort conduct various trading activities.  

Swaps.app has various unique features. The platform notably offers low commissions and a faster transaction experience to its users compared to many other venues in the market.

Swaps.app offers the lowest fees in the industry while at the same time offering the best buying rates. Transactions performed on the Swaps.app employ price execution from top liquidity providers. In turn, this assures that Swaps.app customers get the best price possible for their purchase.

In addition, transactions on the platform take about 3 minutes. This is because there is no Know-Your-Customer (KYC) process and allows transactions to take three minutes to complete. This is a breath of fresh hair since the registration process associated with cryptocurrency exchanges is usually lengthy and cumbersome compared to most. The process has notably caused many people not to engage in cryptocurrency trade. 

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Another notable feature is that coins get to users’ digital wallets within 15 minutes of payment approval. Swaps.app has two currencies available for purchase, including Tether (USDT) and Bitcoin (BTC). Currently, the platform is accepting two payment methods, Visa and MasterCard debit and credit cards. Users can purchase varying amounts of cryptocurrencies up to €1,000 per month.

To merchants and developers, Swaps.app provides a convenient order widget that can be integrated into any webpage with just a few clicks.

In addition to being regulated by the authorities, Swaps.app integrates a full 3-DS V2 for safe and secure transactions. Reportedly, card purchases that use PCI DSS Level 1 certification will be authorized by code and verified by Visa or Mastercard ID Check.

Swaps.app is now available to over 160 plus countries and is available 24/7 throughout the year. The platform is owned and operated by Octo Liquidity, based in Tallinn, Estonia.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.

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Source: https://zycrypto.com/swaps-app-offering-seamless-crypto-swaps-with-no-kyc-process/

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