The Unexpected Rise in Bitcoin: Exploring the Short Squeeze Phenomenon
Bitcoin shorters for $37 million: A Lesson on Liquidations
Shorting bitcoin involves speculating and betting on a price decline. However, recent data from CoinGlass reveals that many short positions have been liquidated. When a short position is closed, the trader must repurchase the underlying bitcoin from the market, causing buying pressure.
While the liquidation data does not specify whether the liquidations resulted in profit or loss, the surge in prices of certain major cryptocurrencies indicates that most liquidations likely incurred losses.
Yesterday, over $37 million worth of bitcoin short positions were closed, while the long positions for the same coin amounted to a mere $3 million. Ultimately, the price of bitcoin increased by over 5% on October 2nd, which evidently forced many investors out of their positions. One contributing factor to this may be leveraged trading.
It’s important to note that Ethereum (ETH) typically follows a similar pattern in these scenarios. As of yesterday, traders liquidated approximately $25 million worth of ethereum shorts. However, Ethereum’s price increase has been slightly less significant compared to bitcoin, with the price remaining relatively stable since then.
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The Unexpected Volatility in the Crypto Market
Determining the underlying reasons behind price movements in the market is not always straightforward. Sometimes, it simply comes down to market conditions. Trading on margin using leverage is a significant contributing factor.
This can lead to a chain reaction, causing sudden volatility that not all traders anticipate. As a result, the crypto market can be particularly volatile.
Unforeseen events are not uncommon in the market. Last Friday, billions of dollars’ worth of options contracts for both bitcoin and ethereum expired. Many analysts expected this expiration to trigger substantial volatility, but the effects were delayed by a day.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial or investment advice. Always do your own research and consult with a professional financial advisor before making any investment decisions.