When Leverage Fails Spot Prevails

Time and time again, investors attempt to beat the classic buy and hold strategy by either overtrading or, even more risky, incorporating leverage into their trading approach. Leverage can come in a number of forms, whether it’s options contracts, derivatives, copy trading, or algorithmic trading bots. But all carry significant risk when things don’t go to plan, and often, all it takes is one event to reset everything to zero.

One wrong trade, poor risk management, or even events completely out of your control can determine whether you succeed or get wiped out.

Most investors will experiment with leverage at some point in their journey. And for many, these moments become turning points. Even experienced investors aren’t immune to losses with leverage. The old adage still rings true:

90% of investors lose 90% of their capital within 90 days when trading with leverage. That statistic alone shows where the majority stand.

Yes, spot holders are also exposed to volatility, but without the looming threat of a margin call or total liquidation. They may experience drawdowns, but the position remains. It’s not lost, it’s simply fluctuating.

This Weekend: A Lesson in Real Time

Over the weekend, we saw a textbook example of how spot prevailed once again.

A record-breaking $20 billion in leveraged positions was liquidated as Bitcoin dropped over 15% within 30 minutes. Most altcoins dropped further, with some down more than 80%. Anyone with leveraged exposure, including via bots or derivatives, faced margin calls and forced liquidation.

Meanwhile, spot holders experienced the same drawdowns, but crucially, they’re still holding their assets. A Bitcoin holder still holds their Bitcoin. An altcoin holder still owns their tokens. That’s the difference.

Let’s explore three simplified scenarios: Where three investors make allocations on Friday (October 10), their portfolio valuations at the time of the liquidation event at 8:30am (October 11) and then their portfolio value on the following Tuesday (October 13).

Scenario A: $100K Spot Allocation into Bitcoin

Investor A allocates $100K into Bitcoin on Friday, purchasing approx. 0.45 BTC
Saturday 8:30am: Portfolio is worth ~$85K
Today (Tuesday): Portfolio has recovered to ~$95K

Investor still holds 0.45 BTC

Scenario B: $100K Spot Allocation into an Altcoin (SUI)

Investor B allocates $100K into SUI at $3.40 (approx. 30,000 tokens)
Saturday 8:30am: Portfolio worth ~$15K (SUI drops ~85%)
Today: Portfolio has recovered to ~$80K

Investor still holds 30,000 SUI

Scenario C: $100K into a Leverage Strategy or Bot

Investor C allocates $100K into a leveraged strategy or bot on Friday
Saturday 8:30am: Liquidated, portfolio value = $0
Today: Despite recovery in BTC and altcoins, portfolio still = $0

Assets are gone, position cannot recover

There’s a clear outcome here. Investor C was completely wiped out. Investors A and B, while facing drawdowns, are still in the game and positioned to benefit from any further market recovery.

Stormrake offers spot-only access to digital assets. We do not promote or facilitate margin trading, leveraged instruments, or derivative strategies. As a result, our clients were not impacted by this weekend’s record-setting liquidations.

Those holding spots through Stormrake remain in control of their portfolios and their assets.

If You’ve Been a Victim of Liquidations:

First of all, it’s not the end. Many have experienced the same. You’re not the first, and certainly won’t be the last.

But it’s what happens next that matters.

There are two types of responses to a liquidation:

1. "I’ll act differently next time."

A natural reaction. You may tell yourself you’ll manage risk better, exit positions faster, or tweak your strategy. But fundamentally, the risk remains the same. No one predicted this liquidation event, and there’s no reason to believe something similar or worse won’t happen again. In the current macro environment, where a single headline or tweet can move markets dramatically, risk management becomes even harder to execute reliably. The definition of insanity is doing the same thing and expecting a different result.

2. Learn and adapt.

The better path. Learn from the liquidation and reassess your strategy. Consider switching to spot positions, remove leverage from your portfolio, and take a long-term view. Avoid chasing short-term, promised returns and give your assets the time and space to grow sustainably.

The market delivered a clear message this weekend. Leverage can be lucrative, but it's also ruthless. And when volatility strikes, survival is the priority.

Spot holders ride through the storm. Leveraged traders often don’t.

Make sure you’re still in the game when the next wave comes.

Written by Alexandar Artis

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The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

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