Bitcoin's halving reduces the number of new coins entering circulation, which historically has created upward price pressure due to scarcity. While this event typically sparks a bullish run, broader market factors also play a role in price movements.
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Leverage trades amplify both gains and losses, which can significantly increase market volatility. When traders use leverage, they borrow funds to take larger positions, magnifying the effect of price movements. If the market moves against them, it can trigger margin calls, leading to forced liquidations, which in turn cause sharp price swings. These cascading liquidations often result in sudden, large market movements, making the crypto market even more volatile. As more traders use leverage, these effects become more pronounced, especially in smaller or less liquid markets.
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Although the VIX measures volatility in traditional markets, its concept can be adapted for crypto. In highly volatile crypto markets, indicators similar to the VIX can help traders assess fear or risk levels. A rising volatility index suggests increased market uncertainty, which often precedes major price swings. By tracking volatility, traders can gauge market sentiment and adjust positions accordingly, using high volatility as a signal to reduce exposure or capitalize on potential price fluctuations. This helps manage risk and optimize trade timing.
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