Insider Trader Faces $116,000 Loss on Bitcoin Short Position

An investor, known as the "Insider Trader" @qwatio, faced a series of liquidations on a highly leveraged short position in Bitcoin. The investor's 40x leveraged Bitcoin short position was partially liquidated four times, with the next liquidation price set at $118,533 and an unrealized loss of $116,000 at the time of the announcement.

The investor had borrowed USDT 2.34 million from the AAVE decentralized-finance protocol, which increased their total borrowings to USDT 17.8 million. The debt was secured by 16,232 ETH, valued at approximately USD 49.1 million. The variable borrowing rate was 5.4%, while the staked ETH collateral earned around 2%, resulting in an estimated net funding cost of 3.4%.

The borrowed funds were used to purchase an additional 2,731 ETH, valued at USD 8.24 million. Post-transaction, the investor held 31,855 ETH with a fair value of USD 96.2 million, and total cryptocurrency plus cash holdings of USD 100.6 million. The board had authorized management to utilize leverage up to 40% of total assets at the time of borrowing. This structure provided a high collateral cushion but introduced liquidation risk if ETH prices fell or AAVE rates rose sharply.

The investor's strategy involved leveraging the potential staking yield expansion against increased balance-sheet leverage and DeFi counterparty complexities. The collateral ratio of approximately 2.8 times offered a sizeable buffer, implying that ETH could decline roughly 55-60% before triggering a forced liquidation. However, the absence of a fixed term meant that the AAVE smart contract could liquidate collateral automatically once the health factor slipped below one, potentially crystallizing losses during market stress.

The variable interest rate floated and could spike in liquidity crunches, while staking rewards could lag. Concentration in a single asset (ETH) plus reliance on a permissionless protocol added smart-contract and counterparty risk not present in traditional finance. Leverage at 18% of crypto assets today could rise quickly if ETH fell, given the borrowings were denominated in a stablecoin. Overall, the risk profile had materially increased even though headline leverage remained below board limits.

The investor's move aligned with a strategy of monetizing validator economics and expanding the NodeOps footprint. Near-term EPS impact was limited because interest expense would mostly offset staking rewards; however, NAV per share became more sensitive to ETH price swings, making the stock a leveraged play on Ethereum. The incremental USDT 2.34 million draw brought total DeFi leverage to approximately 18% of reported crypto value, comfortably below the 40% board cap. With net funding at 3.4% and potential staking yields in the 4-6% range, the spread could be positive and accretive to operating cash flow.