A strong start to the crypto trading year has burnt a hole in pessimists’ pockets.
Half a billion dollars of cryptocurrency short positions were liquidated at the start of 2023 due to a strong crypto rally, according to CoinJournal.net.
There were half a billion dollars in short positions liquidated over the weekend, the most in three months.
Crypto short sellers borrow cryptocurrency or tokens from a lender, sell it on the open market, and then try to buy it back at a lower price in the future to repay the lender and make a profit. They use short trades as a high-risk, high-reward strategy to make significant profits, but only if the market continues on a downturn.
Recently, the market has seen a rally, with Bitcoin (BTC) back above $21,000, Ethereum (ETH) above $1,500, and altcoins like SOL, ADA, and BNB also seeing growth.
However, some markets have since leveled off or declined since the initial pump, leaving investors anxious about whether this recent rally will continue or become an exceptional blip.
“The last couple of months have undoubtedly brought indicators of a more positive environment with regards to inflation, as well as the boost of the Chinese economy reopening,” said Max Coupland, the Director of CoinJournal.
“However, I do worry whether investors are jumping the gun by presuming that this means the Fed will now pivot sooner than expected. (Fed chair) Jerome Powell has been adamant that rates will not taper until inflation is firmly under control, and we are still a long way from the 2% target, while uncertainties such as the Russian war in Ukraine still loom as highly unpredictable”.
The Little Short?
The film “The Big Short” introduced “shorting” to many people’s lexicon in 2015. Based on the true story of several individuals, the film depicts how they predicted the housing market crash of 2007-2008, bet against it, and profited greatly while the rest of the country and the world suffered the consequences of the financial crisis.
Michael Burry, played by Steve Carrell in the film “The Big Short,” successfully bet that the subprime mortgage market would implode due to variable interest rates. This bet resulted in over $700 million in profits for Burry.
Crypto shorts are rarely on the scale of the film, and investments should always be made carefully.
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