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Comment by pbhjpbhj | Hacker News Reader

Well, that helped. /s

I thought leverage was effectively borrowing on anticipated gains. So I would spend $100 to, get credit to the tune of $10k, then buy my crypto with that. But, here we're talking about people buying a coin and the _seller_ saying the coin is worth 100x and so skipping the step of using fractional reserve to 'create' the funds (the loan amount) to exchange for crypto and just going straight to a deceit.

With leverage there's a debt written to counter the credit, here that doesn't seem to be happening.

So, where am I misunderstand the situation here?

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If the coin is trading at whatever price (say $100 a piece), you can leverage by 100x doing this:

- Put $100 as deposit.

- They borrow you 10k to buy 100 shitcoins for $100 each (instead of 1 you can really afford), so 10k of shitcoins with the condition that if the coin price falls below $99 your position is liquidated and you lose all.

Note that there's no seller saying "the coin is worth X", it just trades at that price.

> So, where am I misunderstand the situation here?

It's pretty simple.

They put in $10 to borrow 100x$10 to buy $1000 worth of the coin. If the coin price goes down 1%, the borrower is wiped out.

You don't need fractional reserves for leverage.

>They put in $10 to borrow 100x$10 to buy $1000 worth of the coin. //

If that is all with the coin seller/creator then you're not actually borrowing the money they're just saying 'that $10 token you bought from me 1s ago is worth $1000, you're rich'; you bought $10 worth of coins, the market price is $10, there's no actual leverage involved it's just a deceit.

If the seller is taking the $10 you pay to a different institution, borrowing $1000, then buying the coins, then legitimately they can say it's $1000 of coins. It's still clearly a scheme. The company lending that money are morons in this case unless they are doing it knowing full well that they are going to need to pursue people for the debt.

> But, here we're talking about people buying a coin and the _seller_ saying the coin is worth 100x and so skipping the step of using fractional reserve to 'create' the funds (the loan amount) to exchange for crypto and just going straight to a deceit.

This is a meaningless word salad.

You have an account with an exchange. Taking a position with leverage 100x just means that every time the instrument moves $1 up, your account goes $100 up, and when it moves $1 down, your account goes $100 down.

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