Cryptocurrency prices start the week weak on Monday. Here’s what happens to some of the industry’s best-known names at 9:45 a.m. EDT:
- Bitcoin (CRYPTO: BTC) has decreased by 1.7% in the last 24 hours, according to Coindesk.
- XRP (CRYPTO: XRP), the token closely linked to Ripple, is doing a little worse – a minus of 2.6%.
- Dogecoin (CRYPTO: DOGE) slipped 2.9%.
But on the bright side ether (CRYPTO: ETH) is only 0.9% off.
So what is depressing cryptocurrency traders today? It could be a lack of leverage.
One of the editorials on top cryptocurrency website Coindesk this morning is an opinion warning of “less system-wide leverage” as the FTX and Binance cryptocurrency exchanges limit traders to 20 times the leverage on their trades – meaning they do when buying crypto now 5. have to pay% in advance for a purchase, instead of 1% beforehand.
Although another exchange, BitMEX (which still allows 100x leverage) told Coindesk that 100x leverage is “very rare” in their market and mostly a strategy used by traders the least Having money available to move markets, ie individual investors. In theory at least, limiting the leverage traders can trade should reduce trading volume to some extent – and this has led Coindesk to believe that price fluctuations in the cryptocurrency market should become “a touch tame” in the future.
Of course, taming the markets should work both ways – it should reduce the frequency and extremity that cryptocurrency prices rise (bad for investors), but also the frequency and extremity that cryptocurrency prices fall (good for investors).
But why should this balanced effect cause the prices of Bitcoin, XRP and Dogecoin to simply fall today? To answer that question, ask John Paulson, the hedge fund trader who became famous for his predictive short selling of the housing bubble in 2008.
In an interview with Bloomberg over the weekend, Paulson pointed out the benefits of investing in gold, contrasting them with the risks of investing in cryptocurrency, which he warned as “a bubble” and “a limited supply of nothing”. Cryptocurrencies like Bitcoin and its ilk, Paulson explains, can go up because there is only a limited supply that you can buy. But there is simply “none of the cryptocurrencies has an intrinsic value”, and for this reason he expects crypto – all cryptocurrencies – to “go to zero” at some point.
A prediction like this from an investor with a Paulson reputation is believed to be why cryptocurrency prices are falling today.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.