The number of short orders placed on ether (ETH) reached a new historical maximum during the trading session on Friday, according to data from the Bitfinex cryptocurrency exchange.
At around 10:00 UTC on Friday, the number of shorts placed on ETH / USD, the second largest cryptocurrency in the world by market capitalization, surpassed the previous score of 202,854 to finally reach a new high of 208,689.
The new figure represents an increase of 81.96% from one week to the next and a jump of 162% from mid-August.
The development follows an unfavorable week for the broader cryptocurrency market and in particular for ETH. From 5 to 6 September, the bitcoin (BTC) fell by over $ 1100, a decline of nearly 15%. At that time, over $ 40 billion was paid from the market capitalization of all cryptocurrencies.
Cryptocurrencies tend to follow bitcoin's leadership after a big move, and ETH was no exception. Three days ago, ETH was valued at $ 287 through the stock exchanges, but today it is trading at $ 221, according to CoinDesk's ethiop price index (EPI).
In all, developments mark a decline of more than 80 percent from the all-time North of $ 1200, so perhaps not surprisingly that investor confidence in ETH is at historic lows.
When a short trade of this nature becomes overcrowded – as the new historical maximum suggests – an astute investor must consider the possibility of a "short squeeze".
When short positions are stacked so high, a small price increase could cause short-circuit positions to close in order to avoid a loss of trade. Since the only way to close a short is to repurchase the cryptocurrency, it is possible that ETH sees a rapid rise in prices, also known as "squeezing".
ETH / USD Shorts / Long VS. Price
As seen in the table above, an abundance of short films failed to trigger any kind of short compression in June and July. At that time however, the long ones were at a very low level, comparatively.
Looking at data from a different angle, one could argue that the short and long market conditions are more similar to those of last November and December, given the difference between the two very similar levels (depicted by the white line).
Furthermore, the relative strength index (RSI) is both divergent and negative, with low levels, only in some cases in past years. This suggests that the sale could reach a point of exhaustion and that an upward rise remains a possibility.
Although the idea of short compression is comforting for bulls, it is never a guarantee – and the lack of technical support levels below the ETH / USD has certainly provided the credit for overcrowded trade.
Disclosure : The author retains BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.
Image via Shutterstock; Charts via TradingView