Cryptocurrency: Stop-limit in crypto may result in a far larger loss than you anticipated, says Ari Paul


Bitcoin Satoshi Vision [BSV], the eighth largest cryptocurrency by market cap, recently went through a massive surge in the market, with its value witnessing a double-digit rise. The reason for this rise was speculated be a ‘fake news’ associated with Craig Wright, the self-proclaimed Satoshi Nakamoto, and Binance, a leading cryptocurrency exchange.

It was reported that news of Wright moving a huge sum of Bitcoin to Binance, proving his identity as the creator of Bitcoin was circulating in China’s crypto-community. Interestingly, the ‘fake news’ also stated that Changpeng Zhao, the CEO of Binance, was going to apologize to Wright on Twitter. More so, during the past few days, BSV not only witnessed a massive hike, but also a massive drop.

Edward, a Twitter user, spoke about his experience with trading Bitcoin SV, which later caught the attention of Ari Paul, Managing Partner at Block Tower Capital. The Twitter user stated,

Careful with these low liquidity scam wicks. I shorted it after the Binance delisting and it printed a 45% pump wick shortly after, triggering my stop a cool ~40% higher than the order itself.”

To this Ari Paul stated,

“Especially with low liquidity coins (but this applies to any cryptoasset), you can’t trust that your stop will be filled anywhere near the price you specify. Stops don’t clearly limit your risk in crypto.”

This was followed by Ari Paul explaining the reasons why stops don’t limit one’s risk in crypto. He stated that a stop-limit order in the traditional market was a common risk management tool. Paul further stated that the stop-limit was either entered by a trading software or a broker, adding that “either of them enter an order to close your trade if it moves against you by a certain amount.”

Paul stated that “risks exist to the stop-limit” in the traditional markets, adding that risks were usually “fairly minor” for the small trader, including gap risk, software failure risk, and unexpected exchange shut down. He went on to state these risks, however, were common in the cryptocurrency market, but also “gigantic”.

Paul highlighted that in crypto-markets, exchanges and trading tools experienced major unplanned outages on a frequent basis, adding that the “price gaps sharply frequently and liquidity often vanishes when the market is trending sharply.”

“TLDR: your stop-limit in crypto may result in a far larger loss than you anticipated. It may not get filled at all due to exchange or trading software problem. The price may gap sharply resulting in an awful fill. the only way to manage risk of a trade in crypto with total confidence is with sizing of the position […]”

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