Here's what traders don't get about crypto leverage, according to SBF

The cryptocurrency market is known for its volatility and the high amount of leverage offered to retail traders, but the highest leveraged trades actually have a very limited impact on the market, according to FTX's Sam "SBF" Bankman-Fried. 

The volatile market, which has seen days in which hundreds of thousands of traders have faced liquidations in their futures position, is known for cascading events. During some market drops, liquidations of levered futures positions can exacerbate drawdowns, leading to further liquidations.

On December 4, for instance, there was $1.3 billion worth of long liquidations in bitcoin futures across several venues, according to data compiled by The Block Research. 

Still, Bankman-Fried told The Block in a recent episode of The Scoop that the highest levered trades likely are not having a big impact on these drawdowns. That's because most of those highly levered traders are small. 

"If you have a very big position you're going to be posting substantial collateral on that," he said. "You're not going to have very high leverage on a very high position."


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Bankman-Fried went on to explain:

"And what that means is that even the positions that have like moderately high leverage today on FTX, they're small positions ... And I think that is sort of a really relevant part of this and something that frequently gets missed."

The risk, in Bankman-Fried's view, is in the moves of the underlying asset. 

"Where does that leave you? I think where it leaves you is, yeah, you need to have substantial collateral backing large positions, you need to understand volatility of the asset, you need to understand 50% moves have happened before."

Listen to the full interview here


About Author

Frank Chaparro is the Editor At Large at The Block. Chaparro started his career at Business Insider, where he specialized in the intersection of digital assets and Wall Street, market structure, and financial technology. Soon after joining Business Insider out of Fordham University, Chaparro was interviewing top finance and tech executives, including billionaire Mark Cuban, “Flash Boys” star Brad Katsuyama, Cboe Global Markets CEO Ed Tilly, and New York Stock Exchange President Tom Farley. In 2018, he become a sought after reporter in the crypto world, interviewing luminaries such as Tyler Winklevoss, the cofounder of Gemini, Jeremy Allaire, the CEO of Circle, and Fundstrat head Tom Lee. He runs his own podcast The Scoop and writes a biweekly eponymous newsletter. He leads special projects, including The Block's flagship podcast, The Scoop. Prior to The Block, he held roles at Business Insider, NPR, and Nasdaq. For inquiries or tips, email [email protected].