In the volatile cryptocurrency market, each newly opened short position leaves liquidity behind, which can cause a short squeeze. Thus, these highly shorted cryptocurrencies usually have a pump potential for the short term.
Finbold gathered data from CoinGlass on February 23 to analyze the derivatives market. In particular, we found two potential cryptocurrencies for a short squeeze next week due to massive liquidity pools upwards.
Essentially, short-sellers borrow a cryptocurrency to sell in the market and profit by re-purchasing it at lower prices. This is when they close the position, voluntarily or not.
LINK 1-week liquidation heatmap. Source: CoinGlass
Nevertheless, Chainlink traders could liquidate the long position slightly below the current prices before moving up. This would help increase the short positions and the likelihood of a short squeeze.
Bitcoin (BTC) to suffer a short squeeze soon
Next, there is Bitcoin (BTC), the market leader. Bitcoin is currently consolidating in a range, which means a few liquidations are available in both directions.
In the weekly time frame, we see a similar heatmap to Chainlink, with some smaller liquidity pools slightly below current levels. On the other hand, the most relevant liquidations are towards the $54,400 zone, with nearly $800 million.
BTC 1-week liquidation heatmap. Source: CoinGlass
A Bitcoin’s short squeeze next week could make the price pump over 6%, liquidating BTC short-sellers on the way up.
Still, having these liquidity pools can not guarantee a liquidation event.
Cryptocurrencies’ prices depend on multiple factors, and the market is constantly shifting as traders open and close positions. Investors must play this game cautiously while understanding the risks they are exposed to.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
