/biz/ - Business & Finance

>>4523660
Your analysis is good but I think we're more likely in the second phase. Most of the buying isn't done on margin - yet, but it still looks extremely dangerous. The volatility of crypto can only be compared to the most volatile equities and ETFs. It is illegal to get a loan backed by your securities to buy more securities, but it's okay with crypto since it's so unclear to regulators which ones are securities
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Scenario: 5000 people with accounts on Poloniex, which doesn't even have that high of leverage, decide to short ETH/BTC using a ton of BitShares collateral. Bitshares takes an unexpected dump with the China drama, their positions all get liquidated, tons of ETH is bought back at market. Brief moments of volatility like this can set of chain reactions of volatility across exchanges.

Scenario B: 5000 people on Bitfinex are shorting ETP/BTC, the short interest is through the roof and it's a very crowded trade. ETP on HitBTC has a mere fraction of the volume and the order books are far thinner. You can draw up the price for almost no cost there compared to Bitfinex, and doing so would cause a nasty reaction of short squeezing caused by arbitragers keeping the price at an equilibrium.

Scenario C: 10000 people on Poloniex short DOGE/BTC because it's free money. Chinese exchange BTC38 forces the price up in a similar manner as Scenario B and as long as they consistently draw in just a few more gamblers, the price will continue to go up as stimulant addled chinese gamblers compete for hundredths of a yuan with 0 trading fees. It eventually hits a critical level similar to Scenario B and people long the squeeze just because it was free money going down, so it will be going up too.

The nature of this boom has pure speculative trading far outpacing the growth in mining and actual adoption. Pic related.