The Tightrope Walk of Leveraging

 

Summer is officially here and on the East Coast of Canada, the temperatures are comfortable with weeks mixed with sun and rain so far.

In crypto land, Bitcoin ... the king of the coins, hovers around 20 grand after a couple weeks of outfit collapses not prepared for a big drawback in coin prices. Miners going from holding to selling millions of dollars worth of Bitcoin, where some have multiple mining facilities to keep going and profit is way down for them for now.

Also, millions of dollars went poof when borrowed money used for the risky business of leveraging with an explanation from a recent Forbes article ...

Leveraged trading is a practice that allows traders to play the market with borrowed money in order to jack up returns. The problem comes when the value of leveraged securities falls below a certain level, known as the maintenance margin.

When this happens traders are subject to what’s known as a margin call. It forces the trader to add more funds and cover potential losses. If the call isn’t quickly met, the broker takes the liberty of liquidating leveraged positions.

This leaves the trader holding nothing but the debt they incurred on their leveraged positions.

On a higher scale, such deleveraging is often the cause of a sudden and brutal drop in asset prices. Liquidations cause the falling price to feed back on itself. More and more margin calls come in and more assets are sold, sending the price into a tailspin.

This is what’s likely rubbed salt into the crypto wound during the recent rout.

Meanwhile, I continue to hold what I have in Bitcoin and Ether until better times although I am sure there is a lot of thinking about 'Bottom Price' buying out there and some already have.

Stock indexes are not much better these days with no wins yet from The Feds trying to tackle inflation. So far, raising the interest rate is not cutting it. 

Although stocks within these indexes are everywhere as usual from being up to way down in price and everything in between. 

That's the big difference from the crypto world and even the crypto companies within that are listed on the stock exchange ... for the most part, all revolve around the price of Bitcoin.

Just in my opinion, like the start of 2022 ... energy related and banks that pay dividends continue to be good choices when considering individual stocks or ETF's.