Thread by @mistersk42

A possible explanation for the events that occurred last night in crypto land.

tldr: margin accounts having a cascading crash on @Binance.

1/ Traders on @Binance with up to 150x leverage (borrowing Tethers to buy crypto) have been building up their margin account balances, and when they make money, they double down, and build even bigger positions.

2/ But when the price dips below a certain point, some traders who have these margin accounts are suddenly below their maintenance limits, and they get liquidated.

When they get liquidated, Binance will sell your crypto for Tether, and you are left with little to nothing.

3/ So what happened? Crypto got sold, and Tether got bought. Because Crypto got sold, the price drops, which triggers more accounts, who thought they were safe, to dip below their margin maintenance requirements.

4/ This creates a feedback cycle which basically ends in the liquidation of all the margin accounts. It all ends in a very fast, cascading crash like we just saw.

5/ The bad news is the price is lower, but there's a silver lining. The good news is the market is in a healthier position after this. Most of the unsustainable trader margin accounts are probably gone.

6/ The price we see right now could be thought of as being closer to the "real" price which we would have had without the unsustainable trading accounts.

7/ Evidence to support this theory: look at the price differences between the exchanges (@Binance vs. @Coinbase, for instance) during the crash.

8/ You'll notice the exchange with leverage was significantly lower in price, which suggests bots were arbitraging @Coinbase down to match it.

Additionally, note the Tether price during the crash, which went up to $1.05.

9/ Tethers volume/market cap is currently 3.87.

10/ In conclusion - HODL and BUY THE DIP!