Crypto leverage, made in China and banned in China

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Good evening. As Chinese crypto investors plied their trade in the middle years of the last decade, the exchanges that served them also started to lend them money. It was an easy way to boost exchange volumes and fee revenues, and everyone was a winner when the tide was rising. But when prices fell, people trading on borrowed money were forced to liquidate their positions in a hurry, exacerbating market falls. By 2017 the Chinese Communist Party had decided enough was enough and banned the industry, forcing the country’s emerging crypto entrepreneurs to move offshore. As Grady McGregor writes in this week’s cover story, they took their business models with them, extending ever more leverage to ever more traders, who used the exchanges’ loans to buy both cryptocurrencies and new derivative tools known as perpetual swaps or perps. Trading of the latter, often at leverage ratios of 100 to 1 or higher, now dominates the crypto industry and played a central role in its biggest ever crash in October – a crash precipitated by a threat by U.S. President Donald Trump to ramp up his trade war with China.Subscribe nowOur cover story is also the subject of this week’s Wire China podcast.Other items in this week’s issue: A Sino-U.S. AI conference controversy; The Big Picture on whether Chinese EV makers are the real winners of the U.S. and Israel’s war on Iran; a conversation with Eyck Freymann on defending Taiwan; and China security expert Peter Mattis on the national security risks posed by Chinese-made kitchen appliances.Want this emailed directly to your inbox? Sign up to receive ou…