Crypto’s Leverage Dilemma: Can It Survive Without the Nitro?

Can (Or Why Can’t) Crypto Live without Leverage?

Trying to trade cryptocurrency without using leverage would be like playing poker without chips – possible, but pointless for most people. The entire crypto market has exploded thanks to borrowed money and the hope of massive, quick profits. We’ve created a huge system based on the idea that a small price increase will allow everyone to become financially independent.

After seeing two major market crashes in the last six months – one on October 10, 2025, and another with lingering effects on February 5, 2026 – I’m beginning to question whether the current trend of using leveraged perpetual contracts is based in reality or is simply a bubble.

Trying to gain an advantage often stems from a very old human tendency: believing we can control unpredictable events. It’s like the story of Icarus, who flew too close to the sun with wax wings – why take the slow, safe route when you can aim for something extraordinary?

Leverage isn’t inherently bad – it can be incredibly powerful, quickly turning unknowns into successes (and failures, just as quickly). However, the cryptocurrency world might be more stable with less reliance on risky borrowing and more focus on genuine ownership.

This isn’t a condemnation of borrowing in crypto, but rather a realistic look at how it can be both exciting and financially risky.

Unfolding leverage (Why do we need it?)

Why use leverage? It’s simple: trading with just your existing funds feels slow when others are making bigger moves. Leverage allows you to amplify your potential gains. For example, if you have $10,000 and use 20x leverage, you’re effectively trading with $200,000. This means even a small 5% price change could result in a 100% return on your investment – a very attractive possibility for most traders.

Generally, leverage increases market activity as more traders participate, trading volumes rise, and price differences shrink, leading to better prices for everyone. Both those betting against the market (‘shorts’) and those betting on it (‘longs’) help keep each other in check. During bull markets, leverage can turn excitement into rapid growth. Without it, crypto returns would likely be much more modest. Leverage is what propelled crypto from a small, specialized interest to mainstream attention, making the potential for big gains accessible to a wider audience.

But there’s a more fundamental reason we’re drawn to this idea: humans are naturally attracted to situations where a small effort can produce a huge reward. It’s not simply about wanting to get rich; it’s about finding meaning and a sense of power in a world that often feels overwhelming. The promise of leverage—getting outsized results from minimal input—feels like a fast track to achieving that. However, quick fixes often come with hidden dangers. We desire this feeling much like we need adrenaline—it can feel invigorating in the short term, but constantly chasing it can be damaging to our well-being and financial stability.

Leverage 101

Let’s break down leverage in simple terms. It’s essentially borrowing money to make a larger investment than you could with your own funds. For example, if you have $10,000, you could borrow nineteen times that amount, letting you control a $200,000 position. If the market moves in your favor, your profits are significantly increased. However, if the market moves against you, your losses are amplified even more quickly. If your losses become too great and hit the liquidation price, the exchange will automatically close your position, keep your initial investment as collateral, and notify you that you’ve lost it.

Perpetual contracts, unlike traditional futures, don’t have an expiration date. They stay closely tied to the current market price (the ‘spot’ price) through funding rates – in a rising market, those betting on price increases pay those betting against it, and vice versa. The ability to use very high leverage (sometimes 50x, 100x, or even 200x on less reputable platforms) means even small price movements can lead to huge gains or losses. This system is cleverly designed, but it’s extremely risky – a single unfavorable price change can wipe out your entire investment.

This is simply forcing your ideas onto the market using borrowed resources. It’s like a small display of ambition – pushing past boundaries with boldness, assuming you’re confident in your knowledge. However, the market doesn’t respond to confidence; it’s impartial and uncaring, much like nature itself. Relying too heavily on borrowed funds isn’t skillful control; it’s excessive pride that invites failure.

The recent leverage flushes

October 10, 2025, became a disastrous day for cryptocurrency, often referred to as a complete market crash. Over $19 billion worth of crypto was sold off in just 24 hours – the largest single-day loss ever recorded. Bitcoin’s price fell from around $122,000 to $105,000, while other cryptocurrencies lost nearly half their value, resulting in over 1.6 million traders experiencing significant losses. The initial trigger was a series of tweets from U.S. President Donald Trump announcing new tariffs on China. However, the main cause of the crash was the large number of traders who had heavily invested with borrowed funds, combined with extremely high leverage and overly optimistic market sentiment.

A single price drop started a chain reaction: automated systems reduced debt, leveraged positions were automatically closed, and the price continued to fall. At its worst, around $3.21 billion was lost in just one minute. I experienced this while watching a movie – and honestly, both the market crash and the movie were intense!

By February 5, 2026, another significant downturn occurred, though smaller in scale than the first. Bitcoin’s price plummeted rapidly, experiencing one of the quickest single-day drops ever recorded. This resulted in roughly $2 to $2.5 billion in Bitcoin futures being liquidated, with the overall market losing around $2.3 to $3 billion that week. Those who had bet on price increases (‘longs’) were heavily impacted by growing risk aversion in both the stock market and the broader economic environment. Interest in Bitcoin futures contracts sharply declined by over 20%, and funding rates became deeply negative.

These weren’t just simple fixes to problems; they were stark warnings about risk. When everyone relies too heavily on borrowed resources, a single issue can cause everything to collapse. It’s not about being unlucky; it’s a natural consequence of taking on too much risk and being overly confident.

Addressing the inflated numbers: Spot Vs Perpetuals Volume

Those impressive headlines about “trillions of dollars traded daily” aren’t entirely accurate. In 2025, trading of perpetual futures (perps) far exceeded actual asset trading (spot), with $92.9 trillion in perps compared to a much smaller amount of spot trading. By early 2026, perps made up over 75% of all trading volume on decentralized exchanges (DEXs), even though the overall market value had dropped by 40%.

Let’s look closer: a $1 million perpetual trade using 20x leverage actually requires only $50,000 of real funds from the trader. That $1 million figure is just theoretical; the actual impact on the market and the liquidity provided is closer to that $50,000. When you consider billions of dollars in total open interest, the real economic effect is much smaller than it appears. Traditional spot trading reflects actual coin purchases and sales. Perpetual futures, however, are largely leveraged bets on price, and often involve the same money being traded repeatedly.

This feeling of massive scale in crypto is an illusion. We’re led to believe the market is much larger and more substantial than it actually is. Remove the factors that amplify trading, and the actual amount of readily available funds seems smaller and more manageable. Essentially, we’re trading representations of money and pursuing an idea of wealth, rather than the real thing.

Fees and CEX Vs DEX leverage offerings

As a crypto investor, I see centralized exchanges, or CEXs, as basically high-tech casinos. They offer incredibly high leverage – I’ve seen up to 200x on major coins! – which is super tempting, but also really dangerous. It feels like they encourage you to take on more and more risk, and honestly, they make money no matter what happens to you. The platforms look great and are easy to use, but it’s clear their incentives aren’t aligned with mine – they profit from my trades, even if I lose money.

Decentralized exchanges (DEXs) like Hyperliquid take a more cautious approach to leverage. When I started using it in mid-2024, the maximum leverage was around 20x, maybe reaching 40x or 50x for Bitcoin on certain trading pairs – nothing extreme like 100x. This is because the transparency of operating on a blockchain encourages responsible trading, and excessive leverage could jeopardize the entire platform. Unlike centralized exchanges (CEXs) that focus on high trading volume and fees, good DEXs prioritize long-term stability. Lower leverage limits encourage smarter risk management, like using tighter stop-loss orders and focusing on more balanced trading strategies instead of risky, all-or-nothing bets.

It’s the difference between raw, uncontrolled power – like stealing fire from the gods and burning intensely – and careful, practical wisdom – using just enough to achieve your goal without causing destruction.

My (terrible) experience with leverage

As a trader with several years of experience, I really dove into perpetual contracts in 2021, primarily using centralized exchanges. To be honest, I lost a substantial amount of money over those first few months – a direct result of taking on too much leverage and making some poor trading choices. But I viewed it all as a costly, but necessary, part of the learning process.

I started thinking differently about using leverage around mid-2024 when I discovered Hyperliquid. Unlike major centralized exchanges (CEXs) that offered extremely high leverage – sometimes up to 100x or even 200x – Hyperliquid capped it at 20x, with a maximum of 40x for Bitcoin. This made sense to me because centralized exchanges prioritize maximizing their own profits from trading fees, often with less regard for user safety.

Trading on HL with 20x leverage actually felt comfortable, because using less leverage improved my risk management skills. It also helped me step back from being overly optimistic, as I had been previously.

This isn’t an advertisement for a specific decentralized exchange, nor is it a comparison between centralized and decentralized exchanges. It’s about the benefits of using high, sufficient, and reasonable leverage. I’m not saying leverage is inherently bad, but I believe it should be used responsibly and with careful consideration.

Final take: Leverage is good, until it isn’t

Using borrowed funds (leverage) in crypto can be incredibly powerful, but also extremely risky – a little can be great, but too much can lead to big losses. It helped crypto grow quickly and become popular, creating opportunities for fast gains. However, recent market crashes—billions lost in October and February—have shown that extreme leverage isn’t necessary for crypto to succeed. What crypto really needs is reasonable limits on borrowing, genuine liquidity, and traders who approach it as a long-term investment rather than gambling.

It’s easy to confuse investing and gambling, but a key difference exists. Investing aims for long-term gains by owning assets and being patient, while gambling anticipates losing money in the long run, even if it’s exciting. Using a lot of borrowed money (high leverage) turns investing into pure gambling, making it seem like a good opportunity when it’s actually a likely loss.

Could cryptocurrency thrive without excessive borrowing? Probably, and it might even be healthier and more sustainable, with fewer disastrous losses shared online. While using up to 10-20x leverage still carries some risk, it’s best to avoid extreme levels, and instead concentrate on simply buying and holding crypto, earning rewards through staking, and focusing on projects with real-world uses.

Happy leveraging…

2026-03-11 13:49