Is an Ethereum Short Squeeze Imminent?

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Ethereum’s price rose today some 4%, increasing from a recent low of $490 to a current price of around $550 at the time of writing.

Trading volumes remain at above $2 billion, while transactions have increased to 860,000. That’s the highest it has seen since February if we ignore a brief rise to one million transactions due to gas miscalculations at Binance earlier this month.

Ethereum’s fast price fall yesterday, when some 170,000 eth changed hands within an hour around 6AM London time, sent shorts to their all time high.

Such shorts have now increased further, standing above 200,000 eth for the first time ever, but instead of the price continuing to go down, it has turned upwards today.

Troubles in Italy may have a lot to do with the recent green in crypto. Thundery rain in London is meeting red in stock markets as a flight to safety may be currently on-going.

Some of all that money taken out of Mediterranean bonds and global stocks may park in crypto, at least for now, thus potentially pushing the price up.

That may mean those shorts at all time high might be facing some pressure as price nears liquidation levels, thus itself boosting price even higher.

That’s because margin shorts is a way to increase your bet by in effect borrowing eth, selling it straight away, then hoping price goes down so that you can buy it lower. At that lower price you then give back the eth while pocketing the difference.

So as an example you borrow 1 eth at $600, price goes down to $500, you buy the 1 eth and give it back while keeping $100. The problem is price might instead rise to $700, at which point you would have lost $100.

At a certain point price might rise so high that all of the assets you have on the exchange are just about sufficient to cover the difference, thus the exchange force buys the eth and takes all of your money as you have lost them.

That may happen to all that 200,000 eth if price continues to rise, which means they’ll have to either buy the eth before hand so closing their position, or perhaps wait too long and the exchange is forced to buy the eth for them.

At which point longs may get too high, so the cycle repeats with the price continuing its random walk, but at what point that is exactly for either case no one knows as price movements tend to be unpredictable due to the unpredictable nature of the future and its events.

We’ll therefore have to wait and see whether this is just a bounce, the start of a bull run, perhaps a continued downwards, or maybe it was all a big bear trap since December.

Copyrights Trustnodes.com

 

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