What happened
Cryptocurrency prices are starting off the week on a weak note Monday. Here’s how a few of the best known names in the industry are faring as of 9:45 a.m. EDT:
- Bitcoin (CRYPTO:BTC) is down 1.7% over the last 24 hours, according to data from Coindesk.
- XRP (CRYPTO:XRP), the token closely associated with Ripple, is doing a bit worse — down 2.6%.
- Dogecoin (CRYPTO:DOGE) slid 2.9%.
But on the bright side, Ethereum (CRYPTO:ETH) is off only 0.9%.
Image source: Getty Images.
So what
So what’s depressing cryptocurrency traders today? It might be a lack of leverage.
One of the lead articles on top cryptocurrency website Coindesk this morning is an opinion piece warning of “lower systemwide leverage” as cryptocurrency exchanges FTX and Binance restrict traders to 20 times leverage on their trades — meaning when buying crypto, they must now pay 5% upfront on a purchase, instead of 1% previously.
Although one other exchange, BitMEX (which still permits 100 times leverage), told Coindesk that 100 times leverage is “very rare” in its market, and most often a strategy used by traders who have the least money available to move markets, i.e., individual investors. In theory at least, restricting the leverage with which traders can trade should lower trading volumes to some extent — and this has Coindesk thinking price swings in the cryptocurrency market should become “a touch tamer” going forward.
Now what
Of course, the taming of the markets should work both ways — it should decrease the frequency and extremity with which cryptocurrency prices rise (bad for investors) but also the frequency and extremity with which cryptocurrency prices fall (good for investors).
But why would this even-handed effect result in the prices of Bitcoin, XRP, and Dogecoin just falling today? For the answer to that question, you’re going to want to ask John Paulson, the hedge fund trader who rose to fame in 2008 for his prescient shorting of the housing bubble.
In an interview with Bloomberg over the weekend, Paulson touted the advantages of investing in gold, and contrasted them to the risks of investing in cryptocurrency, which he warned “are a bubble” and “a limited supply of nothing.” Cryptocurrencies like Bitcoin and its ilk, explains Paulson, can go up because there is a limited supply of them that you can buy. But there’s simply “no intrinsic value to any of the cryptocurrencies,” and for that reason, he expects crypto — all cryptocurrencies — “will go to zero” eventually.
A prediction like that one, from an investor with Paulson’s reputation, is presumably the reason cryptocurrency prices are going down today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
