Leverage in cryptocurrency trading is a controversial topic. In my opinion, it does harm to the cryptocurrency ecosystem in general, although it also has benefits for experienced traders. It is like a double-edged sword: it amplifies everything, both the good and the bad.
The pros:
Greater capital efficiency: It allows you to trade with larger positions using little of your own money. For example, with 10x leverage, you control $10,000 with only $1,000.
Potential for amplified gains: A small price movement (e.g., 5% in your favor) can yield enormous returns (up to 50% or more on your initial capital).
Flexibility: It facilitates short selling, hedging, and diversification without needing much capital.
Attracts liquidity and volume: It makes the market more active and attractive to professional traders.
The cons:
Amplifies losses and liquidations: In a market as volatile as crypto, a movement against you can quickly wipe out your entire position. Many novice traders lose everything.
Liquidation cascades causing crashes: When many use high leverage, a drop triggers massive forced sales, pushing the price even lower.
Increases overall volatility: It makes the market more speculative and less stable, driving away long-term investors (HODLers) and giving a bad image to cryptos as a "casino."
Risk for beginners: Many people enter attracted by quick profits, use high leverage (up to 100x or more on some exchanges), and end up wrecked, which generates frustration and poorly regulates the sector.
In summary, for pro traders with good risk management (stop-loss, small positions, low leverage like 2-5x), it can be useful. But on a macro level, excessive leverage harms cryptocurrencies because it contributes to bubbles, violent crashes, and a perception of instability. The market would be healthier and more mature with less crazy leverage. What do you think? 😏
