Crypto traders have been watching on in awe, living somewhat vicariously, as a $27.53 million, 10x leveraged long position on PEPE was placed on Hyperliquid. And if that makes absolutely no sense to you, you’re forgiven.
The very high risk, extremely ballsy gamble, placed by an anonymous whale on Hyperliquid, gives us a rare glimpse at the excitement and enormous risks one can partake in (provided they have enough money) in crypto. As the anonymous traders position swung between profit and near-liquidation, it’s a brilliant example of how the big players move markets. For regular crypto participants like yourself, you’re forgiven if that opening statement made absolutely no sense. But in order to call yourself a participant in this ecosystem, and to truly appreciate what a ridiculous thing this is to do, it’s important to understand the mechanics at work here.
Basically, this whale (trading jargon for ‘very cashed up trader’) was "going long" on PEPE, a fundamental trading concept that many newcomers find confusing. Going long simply means betting that an asset's price will rise. The trader didn't actually put up the full $27 million either. They used $2.75 million of their own capital and used ‘leverage’ to control a position ten times larger. This financial leverage acts like a magnifying glass for both profits and losses. When PEPE's price started falling, the position quickly accumulated $3.8 million in collateral to avoid automatic liquidation.
For a little extra context, if you weren’t already aware, the PEPE memecoin is a cryptocurrency based off the Pepe the Frog meme. The coin doesn’t really have any purpose, other than to give a little laugh. Though, that being said, the joke is really quite old now.
The risks involved with these leveraged long positions really cannot be overstated. It is such a hectic thing to do. Liquidation (ie: losing everything) occurs when losses exceed the available collateral, triggering an automatic closure of the position by the exchange. For retail traders, this often means waking up to an account showing nothing but zeros, after an unexpected price swing. The whale in this case had the resources to keep adding funds, but 99.9% of traders aren't so fortunate. What makes this uniquely dangerous in crypto is the market's notorious volatility – prices can swing 10-20% in hours, making highly leveraged positions extremely precarious. Which makes this case even scarier to watch.
Gif by ProBitExchange on Giphy
On the flip side of going long is "going short," where traders profit from price declines. Short selling involves borrowing an asset to sell it immediately, hoping to buy it back later at a lower price. While less common among retail crypto traders and seen more often in your regular stock markets, shorting plays a crucial role in markets. It allows traders to profit in bear markets and provide liquidity. However, shorting carries its own unique risks – theoretically unlimited losses if the asset price keeps rising, and in crypto's case, the added danger of short squeezes where rapid price spikes force short sellers to cover their positions at steep losses.
The decision to use leverage ultimately comes down to risk tolerance and market understanding. While the potential for amplified gains is tempting, the reality is that most leveraged traders end up losing money - and they know what they’re doing too. The crypto markets move too fast and too unpredictably for most people to consistently time them correctly, especially with borrowed funds. For those determined to try, strict risk management is essential – using lower leverage ratios, setting stop-losses, and never risking more than one can afford to lose.
As this PEPE drama demonstrates, even the biggest players can find themselves in trouble when markets move against them. Should you do something like this yourself? That’s a decision only you can really make, but after reading this you probably feel less inclined to. Depending on the circumstances, it’s a bit of a Hail Mary approach to trading. But the key takeaway isn't to avoid leverage trades entirely, but to approach them with eyes wide open. A big leverage trade is a trade with a lot of power and a lot of pitfalls. In the crypto environment, just like trading, knowledge and discipline remain the most valuable assets any trader can possess.
Whether going long, short, or staying on the sidelines, understanding these mechanics will help you from getting lost and doing something you really regret later.