Bitfinex Allows 100X Leverage, Potentially Boosts Bitcoin (BTC) Speculation
Until recently, Bitfinex only allowed low-grade leverage, but has moved to mimic the high-risk strategy of Bitmex.
Bitfinex may add another level of risk to the Bitcoin market, by dramatically increasing leverage. This allows traders to take risky positions and make bets on the move of Bitcoin (BTC) through loaned funds. But high-leverage margin trading is also extremely risky, potentially leading to extreme losses.
The risky addition, still in limited mode, was announced by Paolo Ardoino, CTO of Bitfinex:
In effect, increasing the possibility for lending and margin trading will also increase the influence of Tether (USDT), which is one of the assets loaned on the exchange.
Margin trading at low rates has been available for multiple markets, including Binance and Poloniex. Bitmex offers high-leverage margin trading, and is considered one of the riskiest markets for position liquidation. Margin trading, in the end, benefits the exchange if risky traders get liquidated.
Bitfinex announced the margin trading at a time when skepticism about the exchange is on the increase. The market operator, sharing connections with Tether, Inc., has added the Unus Sed Leo (LEO) token to its mix, adding another layer of speculation. Bitfinex has been accused of adding assets out of thin air, and using its earnings and liquidations to gain BTC and potentially, fiat.
Currently, Bitfinex holds only around 14 million USDT, but also hosts nearly a billion LEO tokens. The added liquidity through leverage is seen as a danger for distorting BTC prices.
The announcement arrives at a time when BTC climbed once again above the $11,200 range, setting yearly highs. The price spike is happening after months of adding USDT to the market, increasing volumes for the leading coin and leading to suspicions for concerted market manipulation.
The risk of margin trading for digital assets is also higher, since crypto assets have been known for large fluctuations. Bot trading, buyers rushing in or order manipulation lead to much larger price swings and much easier liquidation for leveraged positions.