The biggest short squeeze in the crypto markets since October happened when short positions were closed and Bitcoin did better than the US dollar in a time of political instability.
The cryptocurrency markets had their biggest short squeeze since the big drop in prices in early October. Prices went up, forcing bearish traders to close their positions and raising prospects for a bigger recovery.
According to data from analytics firm Glassnode, short liquidations across crypto futures and perpetual contracts rose to approximately $200 million on Wednesday. This is the largest level since the October market crisis, when about $1 billion in short positions were wiped out. The company added that this was the biggest short liquidation event in the 500 biggest cryptocurrencies since the selloff on October 10.
Source: Glassnode
Liquidations speed up as bearish positions close
Some experts say that the short squeeze and improvement in mood are signals that the market is getting better, which will lead to a bigger bounce. Short sellers have to buy an asset fast when its price goes up to avoid losing even more money. This type of event is called a short squeeze.
Bitcoin BTC$96,757 made up the biggest part of the liquidations, with $71 million in shorts being liquidated in the last 24 hours. According to Glasnode’s dashboard, Ether ETH$3,359 came next with $43 million, and privacy token Dash (DASH) at $84.01 had $24 million in shorts closed.
Macroeconomic and political forces shape market sentiment
Other analysts say that Bitcoin is starting to do better than the US dollar as the market continues to rebound. This is happening at a time when there is more doubt about the Federal Reserve’s independence and more geopolitical worries after the US captured Venezuelan President Nicolás Maduro on January 3.
According to Nicolai Sondergaard, a research analyst at the crypto intelligence platform Nansen, “One structural tailwind for Bitcoin as a reserve asset is the rise in geopolitical volatility, which has so far been a headwind for the US dollar.”
While precious metals are still the main winners in this environment, Bitcoin is becoming more and more part of the conversation as an alternative reserve asset and could benefit from this trend, even if only to a lesser extent.
TradingView says that Bitcoin’s price has gone up 10.6% this year, while the US Dollar Index (DXY) has gone up 0.75% in the same time frame.
Bitcoin may also gain from other strong factors, such as the criminal probe of US Federal Reserve Chair Jerome Powell. Analysts from the crypto market Bitunix suggested on Monday that this might add a “risk premia” to BTC.