The cryptocurrency market is currently riding a wave of euphoria and optimism, with traders and investors anticipating further growth and heralding a bullish market for both Bitcoin (BTC) and altcoins in the near future. However, amidst this positive sentiment, there are two cryptocurrencies facing an increasing bearish outlook, marked by a surge in short positions that could potentially lead to a short squeeze.
As of December 6, Finbold collected derivative market data from CoinGlass to assess the short squeeze risk and opportunity in the market. Notably, the volume in the derivative market for two specific cryptocurrencies, dYdX (DYDX) and Chainlink (LINK), is heavily weighted toward shorts over long positions in both the 12 and 24-hour time frames.
dYdX (DYDX), which recently underwent a token migration to its own chain, has become a subject of a massive short squeeze alert. Despite the token migration, the most liquid asset is still the ERC-20 one, running on the Ethereum blockchain. The unlocking of a significant amount of tokens has led to a surge in short positions, with short-sellers opening $173.84 million (54.46%) bearish positions in the last 12 hours and $301.98 million (53.73%) in a day. This is noteworthy as the total open interest in short positions is 1.37 times higher than its 24-hour volume, representing 34.27% of DYDX’s market cap. This elevated ratio makes DYDX an appealing candidate for a potential short squeeze.
Chainlink (LINK), known for its integral role in decentralized finance (DeFi) protocols, is another cryptocurrency with a rising potential for a short squeeze. The 24-hour opened short positions for LINK amount to $675.07 million (52%), with $331.54 million opened in the last 12 hours. At the time of writing, LINK is trading at $15.62. The considerable short positions in comparison to the $802 million trading volume, surging by 51% in the day, indicate a relevant weight and a potential catalyst for a short squeeze. With a market cap of $8.7 billion, Chainlink's increased demand could trigger the awaited short squeeze.
It's essential to note that while these cryptocurrencies present short squeeze opportunities, there are no guarantees in the highly volatile crypto market. Investors are advised to conduct thorough research, consider various data points, and exercise caution when making financial decisions.
