Be curious no longer!
For a good explanation as to why Bitcoin just jumped bigly in a very short amount of time, take a look at the chart below provided yesterday by our very own @techwizardry:
Do you see the interesting part?
Take a look at the second graph, the one that shows the "Margin Shorts" of Bitcoin on Bitfinex.
As of yesterday, those climbed to 38k, which is higher than it has been at any other point on the chart, and one of the highest levels it has been, well, ever.
Why this is interesting:
This is a very interesting development considering prices were basically on or near the lows.
Usually, when short positions build up, it happens at high points, not low points.
The fact that it is at this level AFTER bitcoin has already fallen some 70% leads me to believe that they are about to get taken to the woodshed.
That is exactly what is already happening today.
Check out the price of bitcoin today:
Anytime you have a large number of traders on the same side of trade, prices often do exactly the opposite.
Plus a large short position is basically a built in buy position, especially when it is being done on margin.
Others seeing similar things:
Brendan Playford, the CEO of Constellation also noted an increase in the build of short positions over the past few weeks.
"Over the past two weeks there has been a steady increase in short positions with people betting against the price of bitcoin."
“Further, the long/short ratio on bitcoin hit a record low of 0.80 and started to recover."
Nick Kirk, a quantitative developer at Cypher Capital echoed similar comments to CNBC this morning, saying:
"The ratio of short margin trades versus longs has been increasing recently."
"Buying volume ticked up today and a lot of these short trades got liquidated, helping fuel the rally."
Why use margin?
Margin is interesting because it offers traders and investors a way to leverage their positions.
In the case of Bitfinex, by using margin, traders are basically allowed to use the positions other investors have sitting on the exchange available for lending.
If say you have $10,000 on the exchange and you wanted to short BTC you could only short $10,000 worth. Which means if the price dropped 10%, you would make roughly $1k.
However, if you had something like 5 to 1 margin and made that same trade. When BTC dropped 10%, instead of you making $1k, you would make $5k as the margin effectively let you 5X the size of your trade.
Keep in mind that it works in the opposite direction too, meaning if you are on 5X margin you can lose your money 5X as fast as well.
Stay informed my friends and squeeze those margin shorts!
*Special thanks to @techwizardry for sharing his chart
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