The Shoe Shiner boy who was giving stock tips to John Kennedy in 1929 remains to this day the most salient symbol of market bubbles. But should we listen to this warning sign?
The average is referring to the amount of investment in the Bitcoin market using leverage - which is just other people's money. When market excitement increases people become more comfortable using leverage to invest, with the downside of this being that they could loss MORE than their initial investment.
This becomes a problem when people don't factor in the risks effectively when caught up in the 'euphoria' of rapid increases and makes the price of the asset more sensitive to small prices changes which can set off rapid profit-taking, flooding the market with supply and ultimately driving down prices.
"In January, the amount of leveraged investment in the Bitcoin market was 15 times the average indicating an already overheated market."
Hey Oscar, great article, but what does this part mean? What's the average referring to? Investing in public markets?
Hello Joe thanks for the question.
The average is referring to the amount of investment in the Bitcoin market using leverage - which is just other people's money. When market excitement increases people become more comfortable using leverage to invest, with the downside of this being that they could loss MORE than their initial investment.
This becomes a problem when people don't factor in the risks effectively when caught up in the 'euphoria' of rapid increases and makes the price of the asset more sensitive to small prices changes which can set off rapid profit-taking, flooding the market with supply and ultimately driving down prices.