According to on-chain analytics firm Santiment, short positions are opening up in large quantities for most altcoins as traders try to profit from the current price drop. Santiment observes that the majority of altcoin traders are now shorting more than longing. It notes that, based on historical precedents, when funding rates show significant shorts, liquidations are more common and surprise bounces can occur.
📉 With #crypto markets declining Thursday, short positions are opening up in large quantities for most #altcoins as traders try to profit from prices dropping. Historically, when funding rates show significant shorts, #liquidations are more common and surprise bounces can occur. pic.twitter.com/ZsURzQLVsM
— Santiment (@santimentfeed) October 20, 2022
The crypto market saw fresh declines in Friday trading, with Bitcoin dipping below the $19K mark once more. The majority of altcoins recorded bigger losses than Bitcoin. Cardano (ADA), Solana (SOL) and Uniswap (UNI) are down 5.14%, 6.14% and 8.09% in the last 24 hours.
As the market experiences losses, macro traders anticipating a sustained decrease in the market’s value run the danger of being caught off guard by a potential short squeeze, which is a sharp rise in price caused by bears caving in on their bearish bets.
Surprise bounce ahead?
Santiment predicts a “likely” rise as altcoin funding rates show significant shorts. Most often, a short squeeze happens when the market has higher-than-normal bearish activity. In these circumstances, even a small price increase might cause bears or short sellers to scramble to square off their positions, which in turn pushes prices higher.
The rebound of risky assets has been restrained by the absence of a strong catalyst and the strength of the U.S. Dollar Index (DXY). Bitcoin is still struggling to break free of its constricting range. The more time Bitcoin spends trading within the range, the higher the possibility of an eventual breakout.
Dan Gambardello, Cryptocapital founder, remains bullish on ADA: “ADA outperformed in the bull market & there were crazy hype headlines. Now ADA is underperforming in the bear market & there are crazy fear headlines. I think Cardano will survive it all and ADA will thrive.”