In a rallying cryptocurrency landscape, every pump and opened long position go away liquidity swimming pools behind, which may trigger lengthy squeezes. Due to this fact, merchants can search for cryptocurrencies with an elevated quantity of longs to arrange for retracements.
Finbold gathered data from CoinGlass on March 2 to research the derivatives market. Cryptocurrencies have shifted to a dominating bullish sentiment amid a notable rally. Particularly, Bitcoin (BTC) and Ethereum (ETH) accrued huge positive factors and now threaten a correction.
Primarily, merchants are likely to open longs when the market goes up whereas favoring short positions when it goes down. Nonetheless, longs are buying and selling contracts that require deposited collateral, setting a liquidation value downwards.
If this liquidation value is reached, the contract closes and liquidates the dealer’s place, promoting the collateral. This may drive costs additional down, liquidating extra buying and selling contracts in a cascade impact referred to as an extended squeeze.
Thus, market makers can use excessive liquidity swimming pools as targets to extend volatility and their income.
Lengthy squeeze alert for Bitcoin (BTC) at $50,000
Curiously, Bitcoin accrued related lengthy liquidations within the $50,000 zone, which performs an essential psychological support and resistance.
The month-to-month chart exhibits eight liquidity swimming pools with over $1 billion every, from $50,700 to $49,700. At the very least half of them have over $2 billion value of lengthy liquidations, as much as over $12 billion in complete.
Nonetheless, there are smaller liquidity swimming pools to the upside, with a candle wick at $64,300. Skilled merchants might use this wick for yet one more impulse looking for to draw extra liquidity to the $50,000 zone earlier than shifting to an extended squeeze.
Ethereum might quickly retrace to $2,400
Alternatively, Ethereum has even bigger liquidity swimming pools to the draw back from February’s historic perspective. These swimming pools level to a doable lengthy squeeze right down to $2,400, in the meantime liquidating many merchants at earlier ranges.
Like Bitcoin, ETH might first go to the native high at round $3,500 to build up extra lengthy liquidations earlier than the larger transfer.
Conclusion
In abstract, Bitcoin and Ethereum might quickly retrace to decrease ranges in a correction motion following the latest rally. A protracted squeeze might trigger 18% and 29% losses from their present costs at $61,000 and $3,400, respectively.
Notably, these are traditionally widespread retracements within the extremely risky cryptocurrency market throughout bull runs.
Nonetheless, the 2 cryptocurrencies might see a quick pump to their native high earlier than shifting down, or the derivatives market might shift solely within the following weeks – eliminating this reported lengthy squeeze deal with.
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