crypto strategy

Crypto Rally liquidates $500 million in short positions

A strong start to the crypto-trading year has sunk a hole in the pockets of pessimists.

Half a billion dollars in short cryptocurrency positions were liquidated in early 2023 due to a strong crypto rally, according to CoinJournal.net.

There was 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 them on the open market, and then try to buy them 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 big profits, but only if the market continues to fall.

Recently, the market has seen a recovery, with Bitcoin (BTC) back above $21,000, Ethereum (ETH) above $1,500, and altcoins like GROUNDADAs and BNB also sees growth.

However, some markets have since stabilized or declined from the initial pump, leaving investors worried about whether this recent rally will continue or become a one-off event.

The price of BTC has improved significantly this month. Source: CoinMarketCap

“The last two months have undoubtedly brought indicators of a more positive environment with regard to inflationas well as the boost from the reopening of the Chinese economy,” said Max Coupland, director of CoinJournal.

“However, I fear investors will jump in assuming this means the Fed will now pivot sooner than expected. (Fed Chairman) Jerome Powell insisted that rates will not come down until the inflation will not be firmly under control, and we are still far from the 2% target, while uncertainties such as the Russian war in Ukraine still loom as highly unpredictable”.

The little short?

The movie “The Big Short” introduced “shorting” into many people’s lexicons in 2015. Based on the true stories of several individuals, the movie depicts how they predicted the housing market crash of 2007-2008, bet against him and benefited 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 movie “The Big Short”, successfully bet that the subprime mortgage market would implode due to fluctuating interest rates. That bet generated over $700 million in profits for Burry.

Crypto shorts are rarely on the scale of the film, and investments should always be made with caution.


Disclaimer

BeInCrypto has reached out to a company or individual involved in the story for an official statement on recent developments, but has yet to receive a response.

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