The crypto trades that amplified gains are now turbocharging losses

The rally in crypto prices this year was boosted by a large heap of debt, with traders using leverage to amplify their gains.

- Vicky Ge Huang & Caitlin Ostroff

Bitcoin lost about 27% of its value since hitting a record high above $126,000.

(AFP)

Now, after a punishing selloff in the past two weeks, the dangers of those bets are becoming apparent.

Investors have never had more ways to place complex wagers on crypto. In some cases people can put down $1 of their own money to gain exposure to $100 of bitcoin. It is a strategy that can produce windfall profits—when the market breaks the borrower's way. If it goes in the wrong direction, traders can be on the hook for big losses and can see their holdings liquidated if they don’t post sufficient funds.

Daily total liquidations on crypto exchanges have been on the rise this year. But in October, they shot up to a record high, according to data from CoinGlass, after President Trump's surprise tariff announcement against China triggered a crypto selloff that compelled exchanges to close out underwater positions.

“In the end, it really comes down to the fact that you can invest with more means than you have, but it also means that you will get punished for not managing your risks accordingly,” said Nicolai Sondergaard, a research analyst at crypto data firm Nansen.