Crypto Rally Liquidates $500 Million in Short Positions

A good start to the crypto trading year has burned a hole in the pockets of pessimists.

According to CoinJournal.net, a strong crypto rise resulted in the liquidation of half a billion dollars of cryptocurrency short positions at the start of 2023.

Over the weekend, half a billion dollars in short bets were liquidated, the largest in three months.

Crypto short sellers borrow cryptocurrencies or tokens from a lender, sell them on the open market, and then attempt to repurchase them at a lower price in the future to repay the lender and profit. Short trades are used as a high-risk, high-reward technique to generate huge profits, but only if the market continues to fall.

The market has recently seen a recovery, with Bitcoin (BTC) rising back above $21,000, Ethereum (ETH) rising beyond $1,500, and altcoins such as SOL, ADA, and BNB rising as well.

However, other markets have already levelled off or dropped since the initial surge, leaving investors concerned about whether the recent gain will continue or become an outlier.

This month, the price of Bitcoin has risen dramatically. CoinMarketCap is the source.

“The recent few months have clearly delivered evidence of a more favourable climate in terms of inflation, as well as the boost of the Chinese economy reopening,” Max Coupland, Director of CoinJournal, stated.

“However, I do worry whether investors are jumping the gun by believing that this means the Fed will now flip sooner than predicted. (Fed chair) Jerome Powell has been categorical that rates will not be tapered until inflation is fully under control, and we are still a long way from the 2% target, with uncertainties such as Russia’s war in Ukraine looming as highly unpredictable”.

In 2015, the film “The Big Short” introduced the term “shorting” to many people’s lexicon. Based on the true story of numerous people, the film illustrates how they forecast the 2007-2008 housing market catastrophe, bet against it, and earned handsomely while the rest of the country and the world faced the consequences of the financial crisis.

In the film “The Big Short,” Michael Burry, represented by Steve Carrell, successfully predicted that the subprime mortgage market would implode owing to variable interest rates. Burry profited more than $700 million from this gamble.

Crypto shorts are rarely on the same size as feature films, and investments should always be done with caution.