What Does The Increase In Bitcoin Shorts Mean For Its Price?

The number of bitcoin shorts has skyrocketed over the labor day weekend.

According to Forbes contributor Billy Bambrough, a short position for 10,000 bitcoin was opened over the weekend. Another report claims that bitcoin shorts surged to $87 million during the same time period. BitMEX, a China-based platform for bitcoin trading, also claims that bitcoin shorts on its platform have skyrocketed. This is a significant development, given bitcoin’s overall market capitalization of $125 billion (as of this writing).

The jury is still out on the effect of shorts on bitcoin’s price movement. In the past, analysts have said that the settlement dates for bitcoin futures typically witness downward pressure on its price as traders typically bet against price increases for the cryptocurrency. But that has not been necessarily true in the past year. Bitcoin’s price rallied in wake of its February futures settlement.

To that extent, the current surge in bitcoin shorts could swing both ways. A positive development related to the cryptocurrency ecosystem could act as propellant for a short squeeze, in which traders are forced to liquidate their positions collectively and the commodity’s price skyrockets. August witnessed similar trading action for shorts, leading to a price decline of $2,000 for the cryptocurrency in two weeks. Even a spate of good news failed to bring cheer to the markets.

Alternately, a massive dip in bitcoin’s price could be the bottom that it needs before riding high again. “From a momentum perspective, lots of short positions can be interpreted as a good time to pile on, as shorts collectively work to break an asset’s back,” wrote Chris Burniske, author of a book on cryptocurrency valuation, on Twitter. “From a contrarian perspective, lots of short positions can be seen as “rocket fuel” to the upside if the shorts are wrong and get squeezed.”