The recent surge in the price of Bitcoin has left many traders in pain and hopeful for a bearish pullback. However, BTC has quickly proved their predictions wrong by hitting the $32,000 mark on Jan. 2, liquidating at $100 million of shorts. This has been possible just a few weeks after tackling $20,000.
BTC Shorters Feel the Pain
BTC tried to crack $30,000 severally on New Year’s Day and overnight but the highly volatile market conditions were a problem. However, it finally clinched the psychologically significant level on Saturday and proceeded to get to $31,000 within a few hours and $32,000 even more quickly. This is the first time that Bitcoin has crossed the $30,000 mark ever.
The move over the $30k mark was followed by a bullish charge that soon took the largest cryptocurrency even higher, with press-time levels attempting to crack $33,000. Many people in the industry celebrated but others were left far worse than they were a few minutes before.
A bot tracking liquidated trades on derivatives giant BitMEx summarized the tone of the market in a tweet. According to the tweet, there had been a liquidated short on XBTUSD.
Liquidated short on XBTUSD: Buy 10,000,000 @ 30864 🏅🏆💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯💯 ~ I'm shocked, shocked to find that gambling is going on in here!
— REKT (@BXRekt) January 2, 2021
Figures suggest that traders making the short move on BitMEX alone lost $10 million, which is a reminder of the dangers of second guessing BTC at crucial levels.
What Is Short Selling
This is an investment method that allows traders to benefit from drops in price of an asset. Traders who make such moves are called shorters while the move is called shorting. Shorting works by allowing shorters to borrow an asset like Bitcoin and sell it at its current price. Later, they purchase the BTC to pay back those they borrowed from.
The hope of shorters is that when they go back to repurchase Bitcoin, the price will have dropped hence it will be cheaper to purchase the assets that need to be paid back. The difference between the selling price and the repurchase price makes the profit or loss.
The platform such as BitMEX that loan individuals assets to short sell can recall them at any given time, with the requirement being only a short notice. Shorters, therefore, risk making losses if the loaning platform recalls their assets before the price drops.
In this case, shorters have had to buy BTC at a higher price than their short selling price, as Bitcoin’s price, instead of dropping like they hoped, has gained, and keeps gaining.
Image courtesy of pixabay