The top two crypto assets have gained significantly over the past seven days, with Bitcoin up 22.6% against the US dollar and Ethereum up 18.6%. According to market data, both crypto assets saw their biggest gains on Saturday, January 14, 2023, and according to Bitfinex’s recent Alpha report, the sharp spike in value caused the highest ratio of short liquidation versus long liquidation since July 2021.
Bitfinex analysts see a cautious approach from bulls because despite the price spike, the market remains highly liquid
Bitcoin (BTC)and Ethereum (ETH)prices rose significantly against the U.S. dollar, triggering a cascade of short liquidations on January 14. Cryptocurrency exchange Bitfinex discussed this issue in its latestAlpha Report #37 in. When traders open short positions against Bitcoin or Ethereum, they expect the price of the crypto asset to decline in the future.
However, if the price of bitcoin rises too quickly, the short trader must be liquidated or buy back bitcoin at a higher price.26} If the price of BTCorrises too much ETHthen short sellers will be liquidated, meaning their short positions will be closed by crypto derivatives exchanges, and according to Bitfinex researchers, a significant number of liquidations took place on January 14.
“Short liquidations fueled the overall rally in Bitcoin and Ethereum,” Bitfinex analysts said in an alpha report.” Short liquidation of $450 million outpaced long liquidation by a ratio of 4.5; on January 14, the market had its highest ratio of short liquidation versus long liquidation since July 2021,” the analysts added. They also noted that among altcoins the liquidation figures and the short to long liquidation ratio were even more severe.
Bitfinex analysts further elaborated that a Bitcoin price retreat still remains a possibility.” While it is common for shorts to be completely wiped out in bear markets, “the analyst notes,” The overall rally is built on a backbone of ongoing market shorts keeping money low and prices pushed up by forced liquidations and running stops. Therefore, a pullback in the bitcoin price remains a possibility.”
The Alpha report adds.
While this move could be interpreted as organic, it is entirely manipulated by a limited number of traders in the market, which is evident as the market depth remains the same as the previous week. Also, the price impact from market orders [bitcoin] is the same as last week, and altcoins are virtually unchanged. In other words, market liquidity remains high even with the leg up, and with open interest plummeting over the weekend, a pullback may be expected with a cautious approach by bulls.
Crypto supporters discuss Gartner’s hype cycle position and the “distrust” phase
When liquidation took place three days ago, Bitfinex reported that Buybit experienced the largest wipeout of short open interest since its inception.” The negative funding rate below $16,000, followed by an increase in the aggregate long-side open interest in [bitcoin], was the driving force behind the price spike,” the researcher explained.
The recent rise in Bitcoin and Ethereum prices has caused many to speculate whether there is a crypto bottom; on January 16, 2023, Bitcoin analyst Willy Woo shared an illustrative image from the Gartner Hype Cycle,He said, ” We appear to be in the ‘disbelief’ phase of the cycle.”
A number of people disagreed with Woo’s opinion that we are in the “distrust” phase of the cycle; Crypto proponent “Colin Talks Crypto” respondedto Woo, “No way. “Colin further stated that it is “typical bear market has been massively shortened (especially in today’s poor macro environment, which is very low),” he stressed. The crypto supporter and Youtuber added:
It means that Bitcoin’s four-year cycle somehow magically became a two-year cycle or something.
What do you think about Bitfinex’s alpha report and the short liquidation that took place this week? Do you think we are in the “distrust” phase of the Gartner Hype Cycle? Let me know what you think on this subject in the comments section below.
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