Terry Duffy, chairman and CEO of CME Group, weighs in as cryptocurrency trading platform Coinbase lost half its value in the past week.
The sudden collapse followed the US government’s announcement new rates on the import of Chinese technology, a move that roiled investors and caused panic.
Joshua Duckett, research director at a forensic crypto companysaid traders were forced to liquidate their positions, sending prices into freefall.
“Most people don’t invest more than they can lose, but in the crypto industry as a whole it’s in the billions in terms of leveraged trading,” Duckett explains.
A neon sign indicates that Bitcoin is accepted at the location of the Paralelni Polis project, an organization that combines art, social sciences and modern technology, in Prague, Czech Republic. (Milan Jaros/Bloomberg via Getty Images/Getty Images)
“The amounts that people have lost vary. Some people have lost hundreds, thousands, millions, the total in terms of liquidations is in the billions.”
Bitcoin, the largest cryptocurrency, fell below $110,000, while Ethereum and other major tokens lost more than 20% of their value within hours.
Traders who had borrowed heavily to bet on rising prices were caught off guard, triggering a wave of forced liquidations that accelerated the crash.
WHAT THE FED SHOULD DO NOW AFTER JEROME POWELL’S JACKSON HOLE EPIPHANY
Traders work during the opening bell at the New York Stock Exchange. (Johannes Eisele/AFP via Getty Images/Getty Images)
“The crypto market reacted more extremely than the stock market because it is open 24/7.” Duckett said. “You will see the stock market react in a bad way. The crypto market reacted in a more extreme way.”
“There was a market decline in terms of multiple cryptocurrencies falling in value over the past 24 hours, primarily due to market news, as well as the effects of that news on people trading in the crypto markets,” Duckett explained.
Leverage, he said, the practice of borrowing to increase exposure, was a major driver of the losses.
“People can borrow against what they have and use extreme amounts, 100x essentially in crypto, which is a pretty large amount,” Duckett noted.
“And so when those positions are liquidated, there’s a big move up or down. In this case, the move down.”
TARIFF UNCERTAINTY THREATENS $490 billion in US manufacturing investment, report warns
The number of people worldwide owning at least $1 million in cryptocurrency has skyrocketed in the past year. (iStock / iStock)
The sudden halt of these leveraged trades caused a chain reaction. “This essentially set off a spiral of successive liquidations,” Duckett said.
Still, there are early signs that the market may be stabilizing. “It seems to have essentially stabilized,” Duckett said. “Right now we’re kind of in a rebound-to-steady position. Tomorrow is a new day.”
“We’ve had a whole day of this kind of news impacting the markets and that initial knee-jerk reaction to recovery, to stabilization. It all essentially depends on tomorrow’s new news,” Duckett added.
CLICK HERE TO DOWNLOAD THE FOX NEWS APP
“The most important rule is not to invest more than you can lose – but that’s not specific to crypto, that’s investing in general. Plus, researching what you’re investing in is also an important part of it.”
