On 11 and 12 October, Bitcoin’s price dropped sharply as traders who had borrowed heavily to speculate on its rise were caught off guard by US President Donald Trump’s call for 100% tariffs on Chinese tech exports. But Bitcoin has already largely recovered because the underlying asset is sound, even if some traders were reckless. (Image: iStock) 
Over 11-12 October, Bitcoin’s price dropped sharply as traders who had borrowed heavily to speculate on its rise were caught off guard by US President Donald Trump’s call for 100% tariffs on Chinese tech exports. The shock rippled through financial markets, triggering panic selling to repay debt, and one of the largest forced liquidations in cryptocurrency history.
But Bitcoin has already largely recovered because the underlying asset is sound, even if some traders were reckless.
Borrowing to buy, be it cryptocurrencies, stocks or gold, can amplify profits when prices soar, but when markets fall, traders become heavily indebted. Traders who accumulated Bitcoin with debt were forced by their lenders to liquidate their holdings at lower-than-ideal prices, deepening the sell-off.
Roughly $19-billion (R328.7-billion) in borrowed positions was lost as lenders moved swiftly to recover their funds, forcing traders to sell. Mass-selling meant Bitcoin went from above $120,000 to nearly $105,000, before clawing back some losses to $111,000 where it is currently trading.
Yet the sudden price drop says much more about the dangers of excessive leverage or borrowings to buy more than one can afford, than it says about Bitcoin itself.
The digital currency remains fundamentally sound: it is scarce, decentralised and increasingly viewed as a hedge against inflation and government-controlled fiat money. With only 21 million coins that will ever exist and institutional adoption growing rapidly, Bitcoin’s long-term investment case remains intact.
The risk of taking on excessive debt to buy an asset, in the hope that its price will consistently rise, doesn’t equate to the asset being fundamentally risky. It only exposes the perils of human behaviour in volatile markets.
Faster, safer, cheaper
Digital assets are here to stay and are increasingly being adopted by banks and financial institutions. This is, in part, because the technology behind them allows faster, safer and cheaper 24/7 trading and settlement.
Bitcoin’s underlying technology, the blockchain, is what continues to draw serious attention and uptake from the world’s largest financial institutions. Blockchains function as decentralised ledgers, permanently recording transactions across a distributed network of computers. Because each entry is verified and cannot be altered, it enables more efficient, transparent and secure financial exchanges around the clock.
This near-instant verification of who is buying or selling an asset makes blockchain-based stocks an attractive proposition for traders who thrive on speed and instant payment settlement.
The blockchain has paved the way for the tokenisation of assets, creating digital representations of real-world holdings such as stocks, commodities like gold, or currencies.
All types of financial firms are increasingly embracing this model of tokenisation. Platforms like Luno are partnering with major banks, fund managers, and institutional investors to provide the infrastructure needed for digital custody and tokenisation services. The result is the gradual merging of traditional and decentralised finance, where regulated institutions leverage blockchain’s efficiency to better serve customers.
A key bridge between these two worlds is the rise of stablecoins, which are digital tokens backed by traditional currencies or other assets. Unlike Bitcoin, stablecoins are designed to maintain a steady value, typically pegged to the US dollar or Euro or other fiat currency. They allow traders to move funds quickly between digital assets and cryptocurrencies without converting back into fiat currency until they are ready.
Mainstream acceptance
Stablecoins are gaining mainstream acceptance. Payment giants Visa and Mastercard now facilitate transactions using them, while regulators in Singapore, Europe and the US are requiring that issuers hold real, audited reserves of fiat currency to back them — a growing standard.
For South Africa, the potential is particularly significant. The rand is among the most traded emerging-market currencies globally. A rand-backed stablecoin, if backed by reserves safely held in domestic custody, could provide 24/7 liquidity and attract cross-border trading activity, while the accumulation of held rands in SA would benefit the broader financial system.
Because stablecoins operate on blockchain networks, they enable instant, low-cost transfers without dependence on traditional banking hours or slow settlement systems. For global businesses and traders, that translates into faster payments and lower costs, which are advantages traditional finance cannot easily match.
Again as financial service providers, banks and trading platforms consider incorporating a stablecoin within their platforms, they will need to partner with experienced digital asset companies, deepening the incorporation of decentralised finance into the mainstream.
Ultimately it’s becoming essential for mainstream financial institutions to move toward blockchain-based payments and trade, as the technology increasingly underpins how value is stored and transferred globally.
Last weekend’s Bitcoin sell-off is a reminder that the real instability lies not in blockchain technology or digital currencies, but in how they’re used.
As the financial world continues to digitise, the institutions that collaborate with crypto-asset exchanges and combine the discipline of regulated finance with the innovation of blockchain won’t just survive, they’ll lead the next phase of global finance. DM
Marius Reitz is the general manager for Luno Africa and Europe.