According to market data, both crypto-assets experienced the biggest spike on Saturday, January 14, 2023. The sudden spike 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 a cautious approach from the bulls as the market remains highly illiquid despite the price spike.
Bitcoin (BTC) and ethereum (ETH) prices rose significantly against the U.S. dollar, prompting a cascade of short liquidations on Jan. 14. Crypto-currency exchange Bitfinex discussed the issue in its latest edition. Alpha Report #37. When a trader opens a short position against bitcoin or ethereum, he or she expects the price of the crypto assets to fall in the future.
However, if the price of bitcoin rises rapidly, short traders are liquidated or have to buy back bitcoin at a higher price. When the price of BTC or ETH rises too much, 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 14.
Short liquidations fueled all the rise in bitcoin and ethereum“, Bitfinex analysts said in the Alpha report. “Short liquidations, at $450 million, outpaced long liquidations by a ratio of 4.5. On January 14, the market experienced the highest ratio of short liquidations to long liquidations since July 2021” the analysts added. They also mentioned that the liquidation numbers and the ratio of short vs. long liquidations were even more severe among altcoins.
Bitfinex analysts further detailed that a retraction in the bitcoin price still remains likely. “While it is typical for bear markets to have a complete erasure of shorts“, the analyst noted. “The entire rally has been built on the backbone of continued market shorts keeping funding low and prices pushed higher by forced liquidations and ongoing stops. Thus, a pullback in the price of bitcoin remains a possibility.“
Alpha’s report adds:
While the move could be interpreted as organic, it is entirely engineered by a limited number of market participants, as evidenced by the market depth remaining the same week over 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 rise, the market remains very illiquid, and with the sharp drop in open interest over the weekend, a pullback could be expected with a cautious approach by the bulls.
Crypto-currency proponents debate the position and disbelief phase of the Gartner Hype Cycle.
When the liquidations took place three days ago, Bitfinex reported that Bybit experienced the largest open interest wipeout short since its inception. ” Negative funding rates below $16,000, followed by an increase in aggregate long-side open interest for… [bitcoin] were the driving force behind the price surge“, the researchers explain.
The recent rise in bitcoin and ethereum prices has led many to speculate whether the crypto’s bottom has been reached. On January 16, 2023, bitcoin analyst Willy Woo shared an illustrated image of the Gartner Hype Cycle and the Gartner Hype Cycle. stated:“I think we are in the “disbelief” phase of the cycle.“
A number of people disagreed with Woo’s view of being in the “of disbelief” of the cycle. The partisan of the crypto “Colin Talks Crypto” responded to to Willy Woo, saying “No way“. Colin further noted that this “would mean that the typical bear market has been massively shorted, (which is highly unlikely, especially in the current poor macroeconomic climate).“The crypto proponent and Youtuber added:
That would mean that a 4-year bitcoin cycle somehow magically became a 2-year cycle or something.