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Excess leverage pushes crypto prices lower

By Robert Davis

21:59, 17 November 2021

Futuristic cryptocurrency exchange with chart, numbers and BUY and SELL options
Futuristic cryptocurrency exchange with chart, numbers and BUY and SELL options. Credit: Open Studio via Shutterstock

Large cryptocurrency assets have had a rough week as investors begin to rethink their inflation strategies.

The dip has hurt both centralised and decentralised (DeFi) assets. For example, centralised assets like Bitcoin, Binance Coin and Solana have all fallen by at least 4% over the last seven trading days. Bitcoin is leading the pack with a 7.2% drop.

For comparison, DeFi tokens like OmiseGO and Alogrand have fallen by 33.4% and 19.4% over the last week, respectively.

Upward movement

Despite the amount of red the crypto markets have shown recently, some assets have seen some significant upward movement over the last week.

For example, Crypto.com Coin, which powers the Crypto.com platform, has seen its value increase 51% in seven days.

Most of the asset’s gains came after Crypto.com announced it is entering into a $700m licensing agreement to rename the Staples Center in Los Angeles, California, as the Crypto.com Center.

Other assets like WAX, a blockchain-based e-commerce platform, have soared even higher. WAX has gained more than 83% in value this week up to $0.91 per unit.

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ETH/USD

3,468.21 Price
+1.770% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

BTC/USD

64,599.95 Price
+0.280% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

XRP/USD

0.58 Price
-8.160% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.12 Price
-0.880% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

Excess leverage

Meanwhile, some analysts say excess market leverage is pushing crypto prices lower. 

Jan Wuestenfeld, an analyst at CryptoQuant, said in a blog post that the on-chain data remains strong for many assets despite the last week of losses. 

"Instead, the drop seems to be related to excessive leverage in the system being flushed out," Wuestenfeld wrote. "As long as on-chain fundamentals do not change on these price corrections, the medium term outlook remains bullish."

Exchange consolidation

But inflation alone doesn’t explain why some DeFi assets are outperforming the crowd.

One reason why DeFi tokens are holding more value than their centralised counterparts is that the crypto exchange landscape is consolidating as crypto investors steadily migrate to DeFi platforms (DEXs) over platforms like FTX and Coinbase, according to analysts at Chainalysis.

A report that Chainalysis released last week shows that the total value collected from DEXs reached $368bn this year, up from $10bn just two years ago.

Read more: Cryptocurrency predictions 2021: will the growth continue?

Markets in this article

BCH/BTC
Bitcoin Cash / Bitcoin
0.00607 USD
0.00004 +0.680%
OMG/USD
OMG Network / USD
0.3014 USD
0 0.000%
OMG/USD
OMG Network / USD
0.3014 USD
0 0.000%
OMG/USD
OMG Network / USD
0.3014 USD
0 0.000%
SOL/USD
Solana / USD
161.5856 USD
4.7744 +3.060%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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