Blockchain analytics platform Santiment revealed that the increased short positions in the crypto market provide an opportunity for bullish investors to position themselves for an uptick in prices.
In a recent tweet, Santiment said traders have doubled down on their short positions due to the market’s current downturn.
Traders Bet Against Crypto Markets
With many traders betting against the market, the likelihood of liquidation increases and, possibly, the prices of assets too. The platform disclosed that the current signal is one that many bullish investors have been waiting for as they prepare for a rise in prices.
🧐 Traders are shorting now as #crypto market caps continue their downturn. When the crowd begins to bet against markets, it increases the likelihood of #liquidations, causing prices to rise. For many #bullish investors out there, this is the signal that many are waiting for. pic.twitter.com/JiKqUBruMn
— Santiment (@santimentfeed) August 16, 2023
The market downturn is evident in the total crypto market cap, which has plunged by more than 1.8% to $1.13 trillion in the past 24 hours, per data from CoinMarketCap. The prices of bitcoin and ether (ETH) have also declined by over 2% within the same time frame to levels around the $28,500 and $1,700 regions, respectively.
The altcoins have suffered even more, with losses of up to 10% on a daily scale.
The Right Time to Buy?
Santiment’s analysis aligns with that of another from on-chain intelligence firm CryptoQuant, which noted a rapid spike in Ethereum’s open interest in the past couple of days. Open interest is a metric that counts short and long contracts in futures markets currently open on all derivative exchanges.
While the open interest indicator keeps track of both short and long contracts, previous occurrences have shown that the metric rises when the prices of crypto assets are down. As it surged in the same period that ETH declined, it is a strong suggestion that the new positions on the futures market are from short traders.
Different patterns over the past month have shown that the spike in open interest is usually followed by a bounce that shoots the crypto asset’s price upward and, in turn, the open interest downward. As Santiment stated, bullish investors see such signals as positive as they believe the current plunge is the right time to buy.
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