U.S. CPI Data and Market Reactions
On November 14, the U.S. CPI data showed an inflation index below the market’s expectations. The stock market reacted positively, while the cryptocurrency market moved in another direction before bouncing back to current levels.
In the meantime, some cryptocurrencies saw an increase in short positions, which can lead to short squeezes if the sentiment remains bullish. With that in mind, Finbold turned to CoinGlass and gathered long/short ratio data on November 15.
Interestingly, this high-volatility event contributed to an increased volume of derivatives for Bitcoin (BTC). The leading cryptocurrency registered $45 billion traded in derivatives, up 59% in the last 24 hours.
Is a Short Squeeze Incoming for Bitcoin (BTC)?
Among the market’s open interest to speculate on Bitcoin, $20.42 billion worth of short positions dominate by 51.87% against the $18.94 billion long positions. While these numbers suggest a dominating bearish sentiment in this segment, it also creates a threat for a possible short squeeze to liquidate the bears.
Notably, shorter time frame ratios show the derivative market either feels neutral or bullish on Bitcoin. This reflects the mentioned volatility, where traders got bearish, facing a massive sell-off event 24 hours ago — to a sentiment shift with the bounce back.
In case of a short squeeze, Bitcoin could re-visit its monthly highs at above $37,500 per coin. Such a price action would reward cryptocurrency traders with close to 4% gains from current prices of $36,132 at the time of publication.
Ethereum (ETH) Could Face a Short Squeeze
A similar pattern can be observed for Ethereum (ETH), the second-largest cryptocurrency by market capitalization and the leading Web3 blockchain. Essentially, Ethereum’s 24-hour short positions of $11.59 billion dominate the $10.64 billion long positions by 52.15%.
However, its 12-hour long/short ratio is almost equal, with $3.37 billion worth of longs versus $3.33 billion worth of shorts.
In the face of a short squeeze, ETH could head back to $2,128, at its monthly highs. Ethereum’s native token is trading at $2,009 by press time, which would result in close to 6% gains for Ether investors.
The Future of Short Squeezes in Crypto Markets
However, there are no guarantees that a massive liquidation event, like a short squeeze, will occur. Despite the notable divergence among the long/short ratio time frames, the overall market sentiment, project developments, and market maker actions will have the final say in setting the price direction for both digital assets.
Hot Take: Market Volatility and Short Squeeze Potential
The recent volatility in crypto markets has raised concerns about potential short squeezes for both Bitcoin and Ethereum as open interest shows dominance in short positions. If this sentiment continues and turns bullish, it could lead to liquidation events resulting in significant price movements for these digital assets.
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