The Bitcoin price stays flat, but people who borrowed money to buy it are already down 8%. Put in $10,000 of your own money, borrow another $10,000 at 8% annual interest, and buy $20,000 worth of Bitcoin. A year later, after repaying the $10,000 principal plus $800 in interest, you’re left with $9,200—even though Bitcoin didn’t fall. Leverage has already eaten into your own capital.
Buying outright means no interest bill, but you give up the return you could have earned by putting that $10,000 into short-term bonds yielding just over 4% a year. Futures are more subtle: the premium is built into the entry price, so you pay a funding cost even without taking out a loan.
The question isn’t just whether you’re right about the direction of the market, but whether you can hold on until your bet pays off. The higher the cost of financing, the less time you can afford to wait.
Buying outright means no interest bill, but you give up the return you could have earned by putting that $10,000 into short-term bonds yielding just over 4% a year. Futures are more subtle: the premium is built into the entry price, so you pay a funding cost even without taking out a loan.
The question isn’t just whether you’re right about the direction of the market, but whether you can hold on until your bet pays off. The higher the cost of financing, the less time you can afford to wait.