Following the strong run-up in bitcoin prices yesterday, traders may now be eyeing another opportunity for further growth as the short trade is getting unusually crowded for the number one cryptocurrency.
In what appears to be short-term traders positioning themselves for a further sell-off in bitcoin on the Bitfinex exchange, the ratio of short-to-long orders on the exchange reached 1.54 during the Asian trading session Tuesday morning, a level not seen since November last year.
Short-Squeeze essentially includes speculating on decrease costs in a marketplace by borrowing an asset that a dealerdoesn’t currently own with a purpose to sell it inside the market. The asset can then be sold again at a decrease chargelater, permitting the short–vendor to take advantage of the distinction among the promoting fee and the shopping forcharge.
at the same time as a high number of sellers in a marketplace is commonly considered a horrific sign, it also opens up possibilities whilst it reaches severe degrees. that is what is known as a brief-squeeze, and it’s far something we havevisible again and again this year as the quick-to-lengthy ratio has hit the high ranges we’re at now.
If the market starts to move upwards inside the close to destiny, the various Short-Squeeze will exit their short positions by way of buying returned bitcoins in the open marketplace. because the fee moves similarly up, even more short–dealerswill get margin calls or hit their pre-set forestall-loss degrees, forcing them to cover their shorts, and developing a self-reinforcing mechanism which can cause sharp charge will increase. whether this could manifest once more this time, however, nevertheless stays unclear.
Significant arbitrage opportunities
Another possible explanation is that there is a significant amount of arbitrage going on right now centered on the Bitfinex exchange, following the surge in the bitcoin price yesterday that brought the price on Bitfinex to nearly USD 7,800 at its peak. That was close to USD 1,000 higher than on other exchanges like Coinbase, where bitcoin reached a high of about USD 6,800 yesterday.
An obvious way for traders to take advantage of a situation like that is to short-sell bitcoin on Bitfinex, while buying bitcoin on Coinbase or another exchange. That way, a trader would be profiting as the price gap between the exchanges closes.
The bitcoin price was nearly unchanged across exchanges on Tuesday morning, and still remains significantly higher on Bitfinex than on other exchanges, which many in the community attributes to speculation and fear about the status of the popular stablecoin Tether.
Price differences at exchanges:
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