Elon Musk Bitcoin Pump Highlights Leverage Trading Risks

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  • The Elon Musk Bitcoin pump last week caught lots of short positions offside
  • The 20% move resulted in millions of dollars worth of Bitcoin being liquidated
  • Leverage trading is a risk that, for many, is just not worth taking

The Elon Musk Bitcoin pump last week got everyone talking about decentralized finance and cryptocurrency again, especially in light of the GameStop debacle, but one other side effect was the liquidation of millions of dollars worth of leveraged short positions. This was despite the general trend of Bitcoin being down and a short position being the more sensible option of the two, but it highlights the dangers of leverage trading, especially where Bitcoin is concerned.

Elon Musk Bitcoin Pump Liquidates Short Positions

Leverage trading is inherently a risky business, with huge gains and huge losses both possible in equal measure. It can be very tempting to engage in leverage trading in an attempt to increase your gains, especially when traders on Twitter post three figure gains over a relatively small move, but, as those who were short on Bitcoin late on Thursday discovered, Bitcoin is still a very volatile asset that can move in unexpected directions in an instant.

The irony is that Bitcoin is in a very clear downtrend and has been since January 8, meaning that being in a short position was actually a sensible option for those who choose to engage in leverage trading. However, a single ambiguous tweet and a Twitter bio change from the world’s richest man was enough for many of those shorts to get liquidated, against the general trend, only for the price to return to almost the same levels just hours later.

Liquidated BTC is Gone Forever

Of course when you get liquidated you don’t just lose some dollar value on your holdings, you give up your precious bitcoin at the same time. Dollar value can be regained – liquidated bitcoin can’t. The situation is even more galling given that price fell as quickly as it went up following the Elon Musk Bitcoin pump, meaning that a new uptrend hasn’t even been started. This means that those who were short gave their bitcoin up to FTX or Binance while those who simply did nothing have still got their bitcoin and made a slight dollar gain.

There’s a lesson there.