Cascade of short liquidations leading to surge in bitcoin price, highest ratio of short vs long wipeouts since July 2021
We can see that bitcoin and Ethereum have moved significantly higher in price against the US Dollar in the past day, causing short liquidation on Jan 14. Cryptocurrency exchange Bitfinex discusses this in its most recent alpha report, which is report #37. According to this report, whenever a trader opens a short position against Bitcoin or Ethereum, he/she also expects the price of the asset to decline in the future. Whereas if bitcoin price makes a bullish run and seeks an upward trend, we may see small traders either being liquidated or having to buy bitcoin at a higher price. When we are talking about the prices of bitcoin and Ethereum we can see that it means that the short position is closed by the crypto derivatives exchange. According to researchers at Bitfinex, there was a significant amount of liquidation on January 14.
Bitfinex analysts say that short liquidations have fueled the overall growth in Bitcoin and Ethereum. “Short liquidations of $450 million outnumbered long liquidations by a ratio of 4.5.” Certainly on January 24, the market saw the highest ratio of short liquidations versus long liquidations since July. Meanwhile he also mentioned that the figures were of course even more severe with short versus long liquidation ratios among altcoins.
Bitfinex further added that the bitcoin price could still move to the downside and it is normal for bear markets to wipe out shorts completely. Rally is built on the basis of a persistent market shortage and thereby funding is also being reduced and prices are being pushed up by forced liquidations and running stops. Therefore, we see the possibility of a further decline in the bitcoin price. Alpha Reports says the move can be explained as organic. It is completely engineered by limited traders in the market who are clearly aware of the week to week analysis of the depth of the market and its exact type of data. The price impact from market orders for [Bitcoin] also appears to be similar to last week, while there is little change for altcoins. This means that even with the leg up, the market remains highly liquid, and with its sharp drop in open interest over the weekend, a pullback can be expected with a rather cautious approach. Certainly when the liquidation took place 3 days ago, Bitfinex reports that Wait experienced the largest short open interest liquidation since its inception. It was also explained by the researchers that the negative funding rate below $16,000 was the driving force behind the subsequent increase in total downside open interest for bitcoin as well as the price increase. If we see that the recent growth of Bitcoin and Ethereum has also led people to speculate whether crypto is bottoming out? Chakras distrust is reflected in Chakra. Many disagreed with Wu’s opinion about the cycle being in the ‘disbelief’ phase. Crypto proponent “Colin Talks Crypto” replied to Wu saying there is no way and further Colin said this would mean the typical bear market got massively shorted (which is highly unlikely, especially In today’s bad macro climate). A crypto proponent and YouTuber said this would mean that bitcoin’s 4-year cycle somehow magically became a 2-year cycle or something.
