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Michael Burry warns the Mother of All Crashes is coming
Crypto is very volatile (since the beginning as it is still immature) and Bitcoin still didn't test the $20.000 breakout level. Crashes will occur for sure and leverage will have a major impact but what after that?
I am still holding on to my crypto portfolio using no leverage and a time horizon of at least 5 years based fundamentals believing blockchain technology will have a major impact on diverse areas (like for instance Africa) and industries (like for instance Supply Chain). Innovations like NFTs and smart contracts, to name a few, are rapidly getting more traction.
Goldman Sachs says crypto is not a viable investment but at the same time sets up and expands its crypto trading desk (because of increasing demand).
Could it be the big guys (and institutions) are late to the party trying to talk the price down so they can join? When prices fall I expect demand to pick up.
I fundamentally agree with the idea that unwise investors and brand new traders are going wild with "meme" stocks that they have never heard of, and with crypto, which has not yet found a useful purpose (other than concealing the identity of those involved in a transaction. Which can be very useful, depending on the business you are in. Ahem.)
But this kind of observation, that things have gone too far, is seldom, if ever, that useful for trade or investment timing, in my opinion. It's almost always the case that something is too high relative to some historical norm, and then it often gets even more too high.
When the cautioners decide to join in, and the nay-sayers are converted to enthusiasts, it is more likely that the original negative forecast will become true. But I think it's very hard to use this for any kind of timing.
Having said this, I won't be surprised if I am wrong and it all comes down tomorrow. But I won't be surprised if it doesn't, either.
"The problem with #Crypto, as in most things, is the leverage," he tweeted. "If you don't know how much leverage is in crypto, you don't know anything about crypto."
I don't know anything about crypto..but I know many people have gotten underwater on the leverage that the indices have. Is crypto leveraged higher than that? Anyone?
Until you make the Unconscious conscious, it will direct your life and you will call it Fate...
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,386
Thanks Received: 10,206
Yes in some places you can get 100:1 leverage. That's one of the reasons so many of the crypto exchanges are banned in the US. Excessive leverage. (The other big one being KYC).
One ES contract equals 4,170 (time of writing) x $50 = $208,500. You can trade one contract with a margin of $500 (or even cheaper, also in the US). That's a 417 : 1 leverage.
A MES contract equals $20,850. Traded with $50 margin is also a 417 : 1 leverage.
For the (M)NQ it's 565 : 1.
It's a combination of not understanding leverage, inexperience and especially the high volatility in crypto that can cause substantial losses trading crypto (like in any other instrument). One has to understand leverage and when/how to use it.
You could also read "If you don't know how much leverage is in futures, you don't know anything about futures." (in Burry's words, not mine).
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,386
Thanks Received: 10,206
While @Mich62 is highlighting that some brokers will allow some clients to "day trade" at higher than official leverage, the official margin requirement for a non-member is over $12,000 and hence the official, CFTC approved, leverage is less than 20:1. If you hold a position at EOD that is the maximum leverage you can achieve. This is on a product considerably less volatile than cryptocurrencies. The maximum overnight leverage varies by contract, the more volatile it is, the less the leverage. I believe the lowest leveraged CME future are Ether Futures which have a margin requirement of 42% of notional, which equates to about 2.4:1.
also leverage is very tricky. Its easy to understand on paper, the math isn't hard, but you have to see the numbers fly in your trading account when the volume comes to really know it. (whichever way they happen to fly)
Coming, they can't be denied. Going, they can't be detained.
