Recently, I’ve seen many beginners asking what liquidation means, so I decided to explain this to everyone in the most straightforward way possible.

Let’s start with the most basic part. If you have $50,000 and you buy one Bitcoin worth $50,000, that’s a normal trade. But margin trading is different. You only put in $5,000, and I cover the remaining $45,000 for you—this is ten-times leverage. Of course, the money I provide isn’t free; it’s a loan to you, and you must repay it.

That sounds tempting, right? If Bitcoin rises to $55,000, you only put in $5,000 principal, and you can turn around and net a $10,000 profit. It’s like your principal doubles directly. But here’s the problem: what if Bitcoin drops to $45,000? It only falls by 10%, but with ten-times leverage, your $5,000 is gone. At this point, you might say the price will go back up, and I can wait—but the borrowed money I loaned you can’t wait. Why should my $45,000 be a gamble together with you? I have the right to sell the coins immediately, take my money back, and be done with it.

If you sell too slowly, and Bitcoin drops again to $44,000, then not only will you lose everything you invested—you’ll also owe me $1,000. This $1,000 becomes your debt, and you must repay it. This is what people call liquidation.

Want to avoid liquidation? The only way is to add more margin. Throw another $5,000 into your account. That way, the value of your cash plus the value of your Bitcoin will be back above $45,000, and then I’ll be at ease.

But there’s a dark story here. In mainland China, there used to be a large number of fake commodity trading exchanges. Unlike those scam websites that directly fabricate data, these exchanges’ data is all real—yet they can still trick investors into losing everything.

The method is actually very simple. For example, for a ten-times leverage product, the price is $50,000. The exchange has complete visibility into every investor’s positions, account funds, and the actual leverage ratio—everything is crystal clear. They only need to pick one of those half-the-night, dark-and-windy hours, coordinate with several powerful market makers, have a large amount of capital ready, and then they can wipe out everyone.

Why does it have to be at midnight? Because most investors are asleep. If you’re asleep, how could you possibly add margin in time?

At midnight, a few market makers go berserk and push the price up—take the price from $50,000 to $55,000. Then the short investors who are fully allocated get instantly pushed over the line with ten-times leverage. The investors are still asleep, so they can’t add margin at all, and their coins get liquidated. It doesn’t take much money to do this, because most people are asleep. You only need a small amount of capital to push the price higher. Then, as the shorts get liquidated one after another, it automatically creates new buy orders, helping the market makers keep pushing the price up.

As the price continues rising, investors using nine-times and eight-times leverage also begin getting liquidated. The market makers only need a small amount of capital to keep the “snowball” rolling and wipe out eight-times, seven-times, and even more conservative investors. Suppose the price is driven from $50,000 up to $75,000. Then all the shorts with leverage five-times and above get liquidated. Where does the money from these liquidations go? If the market makers also use ten-times leverage, and they close their position from $50,000 to $75,000, their pure profit can be four times.

What’s even more amazing is that after they’ve finished liquidating the shorts, the market makers can do the opposite. Now they can go crazy and go short, dumping their sells to pressure the price down. Since $50,000 to $75,000 was pushed up by the market makers themselves, the following “chasing” order flow won’t be that big. Dropping from $75,000 back to $50,000 isn’t hard. Then they increase their capital and repeat the operation in reverse—drive it from $50,000 down to $25,000. At that point, investors who went long at $50,000 with leverage five-times and above get liquidated all over again. The market makers buy back to close, and they profit handsomely.

All of this is real trading. It just requires a bigger pool of capital than retail investors, along with insider transaction data of the retail investors. If you know the retail investors’ entry prices, position sizes, leverage ratios, and also the time periods when they’re not active in trading, you can achieve precise “targeted attacks.” No matter whether retail investors go long or short, they get liquidated—while the market makers make a fortune.

That story above isn’t about Bitcoin. It’s just about unregulated, shady exchanges out in the public. After all, with Bitcoin being so legitimate and regulated, where would “market makers” even come from? Who would allow 20% of people to control 80% of the chips? And with Bitcoin being so secure, how could anyone possibly trick money through transaction data?

In short, Bitcoin is good. Liquidation is definitely a normal condition of the market. There definitely can’t be any behind-the-scenes schemes.

If you want to dig deep into the coin world but can’t find a clear direction, and you want to get started quickly, you can check out my homepage introduction. We can exchange ideas with each other and provide a place for everyone to discuss. If there’s an opportunity, I’ll also lay out plans for futures and spot with everyone. But let me say this first: don’t ask me right away which coin I think is promising or how a certain coin can be made profitable—I honestly don’t know. I hope our meeting can always stay the way it was at the beginning.