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> Is there any reason someone would take out a loan in crypto and pay interest on the repayments? People want to increase their exposure to crypto via leverage
by itake 4y ago
> Is there any reason someone would take out a loan in crypto and pay interest on the repayments?
People want to increase their exposure to crypto via leverage. For example:
1. Collatorize BTC to get USDT
2. Use the USTDT to buy ETH.
3. Use ETH to collatorize to get USDT
4. Use USDT to buy sh*tcoin
5. wash, rinse, repeat
If everything goes up, you can make a ton of money. If things go down... you lose everything.
- benj111 4y agoOr the opposite. Short bitcoin or whatever
- PaulHoule 4y agoIt's pretty dangerous though. Even though crypto is mostly on the way down and out some coins will predictably lurch upward from time to time. If you hold an asset long you have a finite potential for loss but infinite potential for gain. Short it's the other way around. Algo traders and hedgies often treat short and long positions as symmetrical as they almost are when linearized but over long periods of time and large princemovements that's wrong. It leaves you with the hedgie viewpoint that it's as bad a "risk" that the stock market goes up too much as if it goes down which is not the way most people think.
- yvdriess 4y agoIt's very risky. The price has a tendency to jump up briefly when a large short needs to cover its position.
- banannaise 4y agoThe old adage definitely applies here: The market can remain irrational longer than you can remain solvent.