Robinhood's 10x Leverage on Bitcoin and Ether Sparks Market Concerns

Roninhood, the popular trading app, recently launched perpetual futures with 10x leverage on Bitcoin and Ether. This move comes just a day after the cryptocurrency market experienced $478 million in liquidations. Perpetual futures allow traders to hold positions as long as they maintain sufficient cash, known as margin, in their accounts. With 10x leverage, a 10% drop in Bitcoin's price could wipe out a trader's entire margin, triggering forced sales that can cascade into deeper price declines.

Leverage enlarges existing positions rather than attracting new buyers, amplifying volatility in both directions for all crypto holders and not just futures traders. The introduction of perpetual futures with 10x leverage on Bitcoin and Ether, and 3x leverage on other assets, is expected to roll out to eligible US customers in the upcoming months. The launch of weekend trading for select stocks and ETFs through Bruce ATS is also pending regulatory approval.

The recent liquidations on September 28 were largely due to long positions, with $386.5 million of the $478 million loss coming from long positions. The three major cryptocurrencies have seen impressive gains over the last 90 days, but still trade well below their prices from a year ago.

Proponents of the launch view it as a step toward greater mainstream adoption, but critics argue that it brings new buyers to the market and amplifies volatility. The introduction of perpetual futures with 10x leverage on Bitcoin and Ether may increase market participation over time, but it also makes the market more fragile in the short term.

Traders who choose to leverage their positions should take precautions by using only funds set aside for speculation, as advised in 247's free speculation playbook. The implications of Robinhood's perpetual futures extend beyond the direct users of perpetual futures, affecting all crypto holders as declines might be exacerbated and price recoveries could overshoot.