Both major crypto assets have risen significantly over the past seven days, with bitcoin surging 22.6% and ethereum 18.6% against the US dollar. According to market data, the two crypto assets experienced the largest increase on Saturday, January 14, 2023. The sudden rise in value caused the highest ratio of short liquidations to long liquidations since July 2021, according to a recent Alpha report from Bitfinex.
Bitfinex analysts see cautious approach from bulls as market remains highly illiquid despite price surge
Bitcoin (BTC) and Ethereum (ETH) prices rose significantly against the US dollar, causing a cascade of short selloffs on January 14. Cryptocurrency exchange Bitfinex discussed the issue in its latest Alpha Report #37. When a trader opens a short position against bitcoin or ethereum, he expects the price of crypto assets to go down in the future.
However, if the price of bitcoin rises rapidly, short traders are either liquidated or have to buy back the bitcoin at a higher price. When the price of BTC or ETH rises too much, the short sellers are liquidated, which means their short position is closed by the crypto derivatives exchange. According to Bitfinex researchers, a significant number of liquidations took place on January 14th.
“Short selloffs fueled the entire rise in bitcoin and ethereum,” Bitfinex analysts said in the Alpha report. “Short liquidations at $450 million outweighed long liquidations by a ratio of 4.5. On January 14, the market experienced the highest ratio of short to long liquidations since July 2021,” the analysts added. They also mentioned that the liquidation figures and short vs long liquidation ratio were even more severe among altcoins.
Bitfinex analysts further clarified that a decline in bitcoin price still remains likely. “Although it’s typical for bear markets to have complete shorts annihilation,” the analyst noted. “The entire rally was built on the backbone of continued market shorts, keeping funding low and prices being pushed higher by the ongoing forced sell-offs and stops. bitcoin price remains a possibility.
The Alpha report adds:
Although the move can be interpreted as organic, it is entirely designed by limit traders in the market, which is evident from the depth of the market which remains the same week after week. The impact on market order prices is also the same as last week for [bitcoin], and there is little change for altcoins. This means that even with the upside, the market remains very illiquid, and with the sharp decline in open interest over the weekend, a pullback could be expected with a cautious approach to the bulls.
Crypto Proponents Debate Position of Gartner’s Hype Cycle and ‘Disbelief’ Phase
When the liquidations took place three days ago, Bitfinex reported that Bybit had seen the largest removal of short open interest since its inception. “Negative funding rates below $16,000, followed by rising aggregate side long open interest for [bitcoin]were the driving force behind the price spike,” the researchers explained.
The recent rise in bitcoin and ethereum prices has many people wondering if the bottom of the crypto is here. On January 16, 2023, bitcoin analyst Willy Woo shared an illustrated image of the Gartner Hype Cycle and said“I suspect we’re in the ‘disbelief’ phase of the cycle.”
A number of people disagreed with Woo’s take on being in the “disbelief” phase of the cycle. Crypto promoter “Colin Talks Crypto” responded to Woo, saying, “No way.” Colin further pointed out that this “would mean that the typical bear market has been massively shortened (which is highly unlikely, especially in today’s lackluster macroeconomic climate)”. The crypto proponent and Youtuber added:
This would mean that a 4 year bitcoin cycle magically became a 2 year cycle or something.
What do you think of the Bitfinex Alpha report and the short liquidations that took place this week? Do you think we are in the “disbelief” phase of the Gartner Hype Cycle? Let us know what you think about this topic in the comments section below.
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