1. Because wealth itself has a concentration effect, meaning that money or wealth tends to accumulate in places with more money or wealth, forming a cycle where the rich get richer and the poor get poorer. The same principle applies to BTC. This point was actually written by Marx in 'Capital' long ago, and it suggests that in the future, when the wealth gap is very large and the poor can’t afford to eat, that would be the time to start a revolution, and communism might come. Whether we can experience that day is uncertain.
2. Let’s look at the current distribution of gold holdings, which can actually give us some insights. Currently, the reserves of gold, first is the USA at 68%, followed by Germany, Italy, and France, surprisingly correlating with the national strength and level of development. Moreover, we often see rich Americans wearing gold jewelry, and even having gold teeth, which is quite extravagant, right? So wealth flows to where there is money.
3. The current distribution of Bitcoin
Let's take a look at the current distribution of Bitcoin: Satoshi Nakamoto's address holds 1.1 million (5%), 3.7 million are lost (17.6%), miners hold 700,000 (3.4%), retail investors hold 12 million (57%), the government holds 560,000 (2.7%), ETF funds hold 800,000 (3.9%), institutions hold 750,000 (3.6%), and there are still 1.3 million that have not been mined. Therefore, the coins that are permanently lost should number around 4 to 5 million.
So the current situation is that retail investors outnumber institutions and governments, making it a good time for retail investors. As the process progresses, I believe this ratio may reverse. In other words, later on, institutions and governments could hold 56% of the tokens (100-5.2-17.6-6.6)*0.8, while retail investors hold only 5%-6% of the tokens. This aligns with the common saying that 20% of the world's people hold 80% of the wealth.
Daily financial knowledge: Liquidation
Liquidation is an extreme risk event caused by leveraged trading in financial markets, referring to the phenomenon where an investor's account losses exceed their margin, leading to forced liquidation.
Its essence is the result of leveraged magnification of losses, commonly seen in high-leverage areas such as futures, foreign exchange, and cryptocurrency markets.
1. Trigger mechanism
When account equity (principal + floating profit and loss) falls below the maintenance margin ratio, the system will automatically liquidate positions.
Example: Under 10x leverage, a 10% loss results in liquidation (principal goes to zero).
2. Market differences
Futures: Margin ratio usually 5%-15%, potential for margin call (owing funds to brokers).
Cryptocurrency contracts: Leverage can reach 100 times, and liquidation happens very quickly (in seconds).
Foreign exchange: The leverage on mainstream platforms is mostly 50-200 times, and overnight interest can accelerate losses.
Causes of liquidation
1. High-leverage speculation
Investors excessively use leverage (e.g., 100x leverage), and minor fluctuations can swallow the principal.
Example: If Bitcoin's price drops by 1%, a 100x leveraged contract incurs a 100% loss.
2. Holding positions against the trend
Holding positions against market trends without setting stop-loss (e.g., during the 2022 LUNA crash, bottom fishers faced liquidation).
3. Liquidity crisis
In extreme market conditions (e.g., negative prices for oil futures in 2020), being unable to liquidate can lead to huge losses.
4. Platform risk
Some exchanges experience spikes (false price fluctuations) or outages, making it impossible to manually stop losses.
Typical cases
1. The 2020 oil treasure incident in March
Due to a failure to roll over contracts in a timely manner, clients of the Bank of China faced a margin call exceeding 30 billion yuan.
2. The Bitcoin waterfall in May 2021
The cryptocurrency market experienced a single-day drop of 30%, with over 100,000 liquidations and total losses exceeding $6 billion.
3. The LUNA coin went to zero in 2022
The algorithmic stablecoin LUNA's price fell from $119 to $0.0001, triggering a wave of liquidations among global investors.
Risk prevention
1. Control leverage ratio
Beginners are advised to use ≤10x leverage, while experienced investors should not exceed 20x.
Formula: Position margin ≤ Total account funds × 20%.
2. Strict stop-loss
Set a preset stop-loss point for each trade (e.g., mandatory liquidation at a loss of 5%-10%).
Cryptocurrency contracts can set 'trailing stop-loss' (automatically liquidating positions when prices reverse).
3. Diversify holdings
Avoid excessive concentration in a single asset (e.g., do not use all funds to go long on a particular stock option).
4. Focus on capital management
In futures trading, reserve 3 times the maintenance margin (e.g., if the margin requirement is 10%, account funds must be ≥30%).
Post-liquidation response
1. Handling margin calls
If there is a debt after liquidation, the difference must be made up (otherwise, legal action may be taken).
Cryptocurrency exchanges usually waive margin call debts (e.g., Binance, Huobi).
2. Psychological adjustments
Pause trading for at least one month to avoid retaliatory actions.
Revalidate trading strategies with small positions (e.g., experimenting with 1% of capital).
3. Technical review
Analyze the causes of liquidation (whether it was a strategic error or a risk control lapse).
Backtest historical data, optimize stop-loss rules (e.g., change fixed stop-loss to ATR dynamic stop-loss).
Note: Liquidation is essentially the result of uncontrolled risk, akin to gambling. It is recommended that investors stay away from high-leverage trading or only use no more than 1% of total assets for experimentation. If liquidation has occurred, one must deeply reflect on the flaws in the trading system rather than blame market volatility. Remember: in financial markets, survival is always more important than profit.
If you are also a loyal supporter of Bitcoin, why not keep up with my pace and see a different market.
Day focus: OM SUI SOL FUN BTC
