Explaining the Bitcoin Crash: What Are Liquidations and Leverage?

News Snapshot:

Bitcoin plunged suddenly Friday after President Donald Trump announced a 100% tariff on goods from China, setting off the largest liquidation event in the crypto market’s history. But panicked investors weren’t responsible for the bulk of the damage. Instead, the real carnage was felt in the crypto derivatives market—where traders place large bets using borrowed funds, called leverage, and risk getting rekt, or forcibly liquidated, when things go very wrong. Sudden price movements, like the one Friday or ”Black Wednesday” in 2021, are particularly rough on traders using leverage to upsize the risk—and potential reward—of their perpetual futures contracts, or...