Why leverage plays such a big role in crypto.

No market moves as fast as crypto. Prices can rise or fall by tens of percent within minutes. A key reason is how trading works: with leverage. Traders can open positions larger than their own capital. That increases both opportunity and risk, but in crypto it’s mainly a result of how the market is built.

In traditional financial markets, banks, brokers, and central institutions play a crucial role. They provide credit, oversight, and stability. In crypto, that layer doesn’t exist. The market had to invent its own instruments to trade efficiently. That’s how the perpetual future was born, a contract that never expires, fitting a market that trades 24 hours a day, all around the world. It quickly made leveraged trading popular.

Why is this more common in crypto than in traditional markets? There are three reasons:

Audience.

Crypto attracted a digital generation that trades actively and takes short-term opportunities.

Capital.

Much of the wealth in crypto is locked up in long-term positions or staking, leaving less free capital available for trading. Using leverage keeps markets liquid.

Infrastructure.

In traditional markets, a central bank can inject liquidity in times of stress by lending money to banks. In crypto, there’s no such safety net. The market must supply its own liquidity. It does so by allowing traders to borrow capital and increase trading activity. Functionally, that replaces what central banks do through policy and credit, not by design, but as an emergent market mechanism.

This structure has a flipside. When prices drop sharply, positions opened with borrowed funds are automatically closed once their collateral becomes too small. These are liquidations. In early October, that happened at scale. Within an hour, billions of positions were wiped out, and the decline was amplified when Binance temporarily failed. This created a chain reaction of forced selling. Importantly, the shock wasn’t caused by leverage itself, but by how the market infrastructure handled it.

So how does a market recover without a central bank? In traditional finance, central banks can provide emergency liquidity to prevent forced selling. In crypto, the system corrects itself mechanically: risk is purged as positions are liquidated. It’s harsh and fast, but transparent. That’s why markets often stabilize quickly after such events. Crypto is therefore more volatile, but also more resilient. Movements are bigger and faster, but the cleanup is too.

Leverage in crypto is more than a gambling tool. It’s a building block of the market itself. It drives liquidity, price discovery, and speed — and tells the story of how crypto, without banks or central institutions, invented its own financial infrastructure.