Analyst warns cryptocurrency traders of short squeeze; Understand what it means

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Analyst warns cryptocurrency traders of short squeeze; Understand what it means
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The cryptocurrency market is about to face a movement that may surprise many traders. Experts, such as analyst Ali Martinez, highlight the possibility of a short squeeze on Bitcoin (BTC) soon.

This phenomenon occurs when short positions are liquidated en masse. This forces the purchase of assets, resulting in a sudden increase in price.

The recent predominance of short positions in the derivatives market points to this possibility. According to data from Binance, 57.77% of open positions are betting against BTC on September 27, 2024.

Bitcoin remains in a downward trend that has lasted more than six months. Bluntly, the cryptocurrency exhibits a short-term sideways movement, signaling a consolidation phase.

Short squeeze for cryptocurrencies

This scenario has created a fierce dispute between bulls (buyers) and bears (sellers), while analysts disagree about the future direction of the main cryptocurrency.

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However, the significant increase in short positions suggests that sellers may be underestimating the potential for a sudden rally, which could trigger the much-feared short squeeze.

When traders bet on a cryptocurrency falling and the price starts to rise, those with short positions need to buy quickly to cover their losses. This movement creates an upward spiral, which can drive the price of Bitcoin to unexpected levels. In situations like this, liquidity in the market becomes crucial, and the volume of short positions makes BTC an easy prey for bulls.

Other analysts, such as Credible Crypto and Alan Santana, also endorse this short-term view for Bitcoin. They warn of a possible correction, but see the opportunity for a short squeeze as an impetus for a new phase of appreciation.

October, known in the market as “Uptober”, is historically a positive month for cryptocurrencies. If the pattern repeats, Bitcoin could break out of this prolonged downtrend and surprise with a significant rally.

Although the market is showing signs of volatility, many analysts believe that this additional liquidity created by short positions could provide the necessary fuel for a recovery in prices.