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Speculative Speculation: Panic Sets In

Do you guys understand what is going to happen when short positions attempt to cover? BTC

Imagine you borrow a bunch of btc from an exchange and sell it all thinking you’ll buy it back lower. You anticipate that there will be a net gain after paying the exchange back when the time comes to buy again…

…you wait. This is the big opportunity. The guy on twitter said the bottom isn’t in. Macro looks bad. Everything is ugly. You decide to increase your margin size level of risk up. What could go wrong…

…you wait more. You’re so certain this is the winning trade, you are all in. What you didn’t notice is that every other market participant is shorting as well with exception to the few that have been speculating that the bottom is already…

…and still you wait. You got into the market in 2021 and have managed to build a good profit simply just shorting the market. You know best…

…but then it happens. You receive an email that indicates you have 2 options: add collateral to your margin position or pay your margin position off.

But there’s a problem. You’re already all in. Hours go by, and you watch as your margin risk increases…

…seemingly overnight your short position is deep under water. What are you going to do? Do you move cash from your runway account (You do have runway, right?) to pay the position off? Do you add more collateral and leave the position open?…

…by the time you finally collect yourself enough to form a rational thought, you nervously fumble with the chart to confirm to yourself that the bottom still isn’t in. You find reassurance in the possibility that there is at least a few percent downside to cover…

…you decide to add collateral to your position. How could the majority be wrong, right? But then it happens again…

…another margin call. Panic sets in. You frantically move whatever petty cash you have into the exchange to attempt to short. Again. Bad timing. That was a scam pump. You’ll make it…

…all back. Meanwhile… there isn’t enough supply on the books to cover everyone else that is frantically trying to cover. You are about to receive your first ever gamma squeeze…

…you receive notice that your entire position has been liquidated. You have no cash, and you are completely flushed from the game. It’s not your fault though - some jerk with 500k followers told you that down was a sure thing…

This post is based on this twitter thread.

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