I'm old enough to have lived the .com bubble as an adult, and almost everybody knew/suspected it was a bubble, and that 95% of the business would fall at some point in the near future. But if you believed that it would last at least one more year, and you can squeeze a 20% profit, and you can do it leveraged 10x... it's just too tempting to many.
Fast forward 7 or so years, housing bubble, same tune: it was a main talking point, everybody knew it was a bubble and unsustainable, but very few predicted the burst to 2007 (and even the ones who did were the same that predicted it to 2004, 2005 and 2006). You are in 2004, everybody saying "this is a bubble" and waiting. In 2005 people still waiting looked like losers, while 2004 buyers laughed and I-told-you.
Nobody wants to be a loser, and some people should beat the market or get fired. Only way to beat the market? Ride the bubble. And the rational way to ride a known bubble is leveraged: you enter the market, profit heavily, and ideally exit (it almost never works). You know you cannot ride a bubble expecting it to rise forever, you know it's going to crash, so you need to enter and exit ASAP.
Or 2 people, who pass $1K "worth" of coin back and forth 1k times.
it's more efficiently, as you can replace the people with for loops.
My point was that wash trading isn't the only explanation.
The real question is why only this amount of wash trading and why everyone doesn’t do a billion.
You can't fool everyone all the time, but the transactions (volume etc) are likely intended to be realistic enough to fool some people sometimes.
So my explanation has more explanatory power than yours.
100x$100 is $10k no matter how much you lie that your shitcoin is worth 100x what people will pay for them. And that's diminishing your yield making it marginal whether you're matching your opportunity cost.
It's not worth 100x. You don't understand how leverage works, clearly.
I thought leverage was effectively borrowing on anticipated gains. So I would spend $100 to, get credit to the tune of $10k, then buy my crypto with that. But, here we're talking about people buying a coin and the _seller_ saying the coin is worth 100x and so skipping the step of using fractional reserve to 'create' the funds (the loan amount) to exchange for crypto and just going straight to a deceit.
With leverage there's a debt written to counter the credit, here that doesn't seem to be happening.
So, where am I misunderstand the situation here?
- Put $100 as deposit.
- They borrow you 10k to buy 100 shitcoins for $100 each (instead of 1 you can really afford), so 10k of shitcoins with the condition that if the coin price falls below $99 your position is liquidated and you lose all.
Note that there's no seller saying "the coin is worth X", it just trades at that price.
It's pretty simple.
They put in $10 to borrow 100x$10 to buy $1000 worth of the coin. If the coin price goes down 1%, the borrower is wiped out.
You don't need fractional reserves for leverage.
If that is all with the coin seller/creator then you're not actually borrowing the money they're just saying 'that $10 token you bought from me 1s ago is worth $1000, you're rich'; you bought $10 worth of coins, the market price is $10, there's no actual leverage involved it's just a deceit.
If the seller is taking the $10 you pay to a different institution, borrowing $1000, then buying the coins, then legitimately they can say it's $1000 of coins. It's still clearly a scheme. The company lending that money are morons in this case unless they are doing it knowing full well that they are going to need to pursue people for the debt.
This is a meaningless word salad.
You have an account with an exchange. Taking a position with leverage 100x just means that every time the instrument moves $1 up, your account goes $100 up, and when it moves $1 down, your account goes $100 down.
You just made me realize how much cash trading platform probably are making using leverage. That explain why they were so quick to add theses coins. I'm curious to know how they manage the risk though.
My understanding is that leverage is profitable to trading platforms, not because the fees are bigger, but because bigger leverage is "more fun" and so people trade more.
I don't know, you might be right.
Do you mean a percentage of the notional value?
What do you need to have a daily traded volume of $1m? Lets find examples.
E.g. 1 - you need e.g. 1k people trading $1k
Is that unrealistic? I don't know. The world is a very big place with a lot of stupid people. But wait! all of these morons use stupid leverage. Many of these platforms give you 100x. Yes, really.
Here's a few more ways that you can get $1m daily:
e.g. 2 - 1k people putting up $10 with 100x leverage
e.g. 3 - 100 people putting up $100 with 100x leverage
Neither of these look unrealistic to me.