Traders Prepare For a Big Bitcoin Drop as Shorts Stack 50%
Is the first-ever cryptocurrency about to experience yet another fall, or will these fresh short positions be squeezed in a strong push upward into a rally?
The talk of the cryptocurrency market over the last couple of weeks has been the growing spike in long positions on the crypto exchange Bitfinex, nearing the highest levels the metric had ever seen.
But over the last 24 hours, shorts on the popular crypto platform have also spiked, by as much as 50% in just one day.
Oftentimes, when the market begins to fall, short positions pile up in anticipation of a further move lower, but those late to take a short trade end up getting squeezed in a strong push higher. As the price of Bitcoin rises, short trade stop losses are triggered, or short traders begin to manually cover and close positions to avoid further losses, causing a cascading effect in price movement.
The resulting spike is called a short squeeze, and due to the recent surge in short positions, the chance of such a contrarian move becomes more and more likely.
Bitfinex Longs Reach All-Time High in BTC At Stake
However, the recent surge in shorts could be a contrarian strategy itself. The ratio between long and short positions on the crypto platform greatly lean in favor of longs, even with the recent surge in shorts causing the ratio to come closer to parity.
— CryptoHamster (@CryptoHamsterIO) December 16, 2019
Long trade positions taken in Bitcoin, however, are at the highest level they have ever been at, in terms of overall BTC put at stake.
Speculation suggests that the longs are the result of a lone whale taking a massive position ahead of Bitcoin’s hard-coded halving, which is expected to cause the price of the first-ever crypto asset to rise significantly as the delicate balance of supply and demand is thrown off.
Regardless of the direction of the next move, it’s clear that traders are expecting a big move in Bitcoin soon, and are taking positions in advance of what they expect to be a trend-defining movement, at least in the short-term.
If Bitcoin price rises from here, it will need to reclaim resistance as support at $8,000 to get the market bullish once again, or the crypto asset is at risk of falling lower toward $6,000, or potentially even lower back into a bear market.