Dan Peña says over-leveraged traders can bring market down

Dan Peña, the millionaire business man behind the Quantum Leap Advantage (QLA) method, says that crypto investors, particularly young ones “lacking historical context”, are using too much leverage together with poor risk assessment.  

According to an article on Business Insider this morning, Dan Peña breaks down the four risks for a full-on market crash. He cites those risks as margin debt being at an all-time high, an overvalued market, interest rates at an all-time low, and a “lack of sophistication of the average investor”. 

Peña believes that that these four risks can combine to create the perfect storm for a huge plunge in markets. He has personally been betting on this market crash for the last few months. 

Peña, known as “the trillion dollar man”, is the founder of the QLA method that is said to have “produced over a trillion dollars in equity/value since 1993.” 

He recently took issue with retail investors, and millennials in particular, who he says lack a deep understanding of market patterns, and are choosing to ignore historical perspectives. He sees these investors clinging to the belief that the current bull market is “normal”. 

Source: https://twitter.com/danspena

Peña has a rather unique style. His lack of political correctness and brash way of speaking have gained him some popularity on social platforms such as TikTok. Peña himself puts his success down to having lived through many recessions, which helped to build his experience. 

"As I've been told by techies, and I'm not a techie, is there's still no algorithm for 50 years of experience. And I've been around the block. I've been in business on all six to seven continents," 

Peña’s view is that margin debt is at an all-time high, and that this was the case in the two previous big crashes of the dot.com bubble, and the 2008 financial crisis. He says that the added concern this time is that the debt level is almost double its previous all-time highs. 

In relation to the crypto market, he says this: 

"When we do have a correction, a lot of people will have to sell assets to cover their margin, and even though I'm not a believer in bitcoin, bitcoin does affect the market, and what most kids don't realize, or they've chosen not to realize or not to notice, is that you can leverage up to 95% on bitcoin." 

Peña believes that as traders sell off their assets to cover their margin calls, a “snowballing market sell-off” can ensue. 

The entrepreneur recommends that younger investors dollar-cost average into mutual funds that have no commission or sales charges. He also suggested they diversify over a few ETFs, tracking index funds that have out-performed the market over the last 10 to 15 years. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.