Recently, I’ve been pondering a question: many people enter the crypto space and immediately leverage up, without understanding what they’re doing at all. Instead of trading, they’re basically gambling.

First, let’s talk about the basic difference between leveraged trading and regular trading. You have $5,000 and want to buy Bitcoin. Normally, you would buy $5,000 worth of coins. But leveraged trading is different. You only need to put up 10%, which is $500, and the exchange loans you the remaining 90%. That’s how tenfold leverage works—you’re effectively using a $5,000 principal to control a $50,000 position.

Sounds exciting, right? It definitely is. Suppose Bitcoin rises from $50,000 to $55,000, a 10% increase. Your $5,000 principal doubles to $10,000. But on the flip side, if it drops to $45,000, you’re done for. A 10% decline, but with tenfold leverage, your $5,000 is essentially wiped out. The question then is: can you hold on without selling, waiting for the price to rebound? Of course not. The exchange isn’t gambling with you; they need to recover the $45,000 they lent you. When the value drops to the point where it’s just enough to cover the debt, the exchange will forcibly sell your coins—this is liquidation.

The real horror of liquidation isn’t just that virtual currencies can be liquidated; it’s the logic behind it. If Bitcoin keeps falling, say to $44,000, after selling, you not only lose your principal but also owe the exchange $1,000. That’s debt you have to pay back yourself. That’s why experienced traders will add to their positions at critical points, throwing more money into their accounts to bring the collateral value back to a safe level.

But that’s not even the darkest part.

In China, there have been many virtual commodity exchanges that, on the surface, show all data as real, but still manage to wipe out investors completely. The method is actually quite simple: it exploits the liquidation mechanism of virtual currencies.

Imagine an exchange with a tenfold leverage product, with the price stable at $50,000. The exchange controls all investor positions, knowing who’s long, who’s short, how much cash is in each account, and how much leverage each user is using. They even know who’s asleep in the middle of the night.

On a dark, windy night, the exchange teams up with powerful market makers, ready with large sums of money. Most retail traders are asleep, unable to detect any abnormal activity in time. The market makers start aggressively buying, pushing the price from $50,000 up to $55,000. Meanwhile, those with full positions, no cash reserves, and tenfold leverage are immediately on the brink of liquidation. They’re still sleeping, and by the time they wake up, their positions have already been forcibly closed.

This process costs very little because most people are asleep. As the price continues to rise, traders using eight or nine times leverage also start to get liquidated. Their forced liquidations automatically generate buy orders, invisibly helping the market makers push the price even higher. It’s like a snowball—market makers can use very little capital to keep climbing higher.

Suppose the price is eventually pushed to $75,000. All short positions with more than five times leverage get liquidated. What about the money they lost? If the market maker also uses tenfold leverage, going long from $50,000 to $75,000 and closing, their profit can multiply four times.

Even more ruthless, after shorting, the market maker