In the recent period, the cryptocurrency market has witnessed a consistent downtrend in market capitalization, driven by increasing fear and uncertainty.
To respond to this prevailing sentiment, traders are seizing the opportunity to short their positions, capitalizing on the ongoing market downturn, as noted by behavior analysis platform Santiment on August 16th.
This shift towards a bearish psychology has triggered a chain reaction. Notably, as investors begin to bet against the market, it increases the likelihood of liquidations, which can subsequently lead to a sudden price surge, explains Santiment.
Traders are currently shorting their positions as the overall cryptocurrency market capitalization continues to decline. As the crowd starts to place bets on the market, it amplifies the potential for liquidations, resulting in price surges. For many optimistic investors, this is a signal they have been waiting for.
According to Santiment, the act of shorting cryptocurrencies is a long-awaited sign for bullish investors, who have been hoping that the market could be ready for a change.
The Warning of a Short Squeeze
Santiment’s chart illustrates an increase in short positions for several popular cryptocurrencies, including THORChain (RUNE), VeChain (VET), The Sandbox (SAND), Kava (KAVA), Binance Coin (BNB), Axie Infinity (AXS), and more.
The rising short ratio indicates high levels of fear, uncertainty, and doubt (FUD). In such an environment, investors are more likely to liquidate their short positions, which could ultimately lead to a situation of a ‘short squeeze’.
When numerous short positions are liquidated, the demand for cryptocurrencies increases, potentially driving up their prices even higher.
This chain reaction could set off an extended cycle of price increases, as panicked short sellers hastily buy and close their positions, amplifying the overall market uptrend.
Global Cryptocurrency Market Capitalization Loses $25 Billion Amidst Fear
Meanwhile, cryptocurrency prices have experienced a significant downturn on August 17th due to noticeable shifts in market sentiment. Specifically, ‘fear’ seems to be the prevailing emotion among cryptocurrency investors, replacing greed.
As a result, the global cryptocurrency market capitalization has decreased by more than 2.1% within the past 24 hours, losing over $25 billion in market capitalization, according to CoinGecko.