As a seasoned crypto investor with several years of experience under my belt, I’ve learned to pay close attention to market indicators and trends that could potentially impact the prices of various digital assets. The recent analysis by Santiment on altcoins being heavily shorted on the derivatives market caught my attention, specifically when it comes to Cardano (ADA).
According to on-chain analysis firm Santiment, Cardano (ADA) is a potential altcoin candidate for price increases in the near future.
Cardano Among Altcoins That Are Being Heavily Shorted Right Now
On X’s latest update, Santiment discusses the altcoins being sold short in the derivatives market. A key metric to consider in this context is the “Funding Rate.” This figure represents the recurring fee paid by traders involved in these derivative contracts.
When a metric’s value is positive, it signifies that long-term contract holders are presently shelling out more than short-term investors to maintain their stakes. This situation suggests a predominantly bullish outlook among market participants.
Meanwhile, the pessimistic signal implies that more traders currently hold short positions than long ones. Consequently, a prevailing bearish attitude exists within the market.
When discussing the subject at hand, Santiment has mentioned the Funding Rate particular to Binance, the leading cryptocurrency exchange in terms of trading volume. This rate is significant as it’s expected to reflect the trends observed on other prominent exchanges.
Based on the data presented in the following chart, which was provided by the analytics company, you can observe the development of this particular indicator for three different altcoins during the previous several months.
In the past five weeks, the Binance Funding Rates for Cardano, Chiliz (CHZ), and Fantom (FTM) have all remained in the red zone on the graph, indicating that investors have consistently placed bearish bets on these cryptocurrencies.
Previously, forceful selling of an asset has historically led to an increase in its price due to a higher probability of a margin call or short squeeze impacting the larger market position holders at present.
In simpler terms, a “liquidation squeeze” refers to a rapid price shift that results in the simultaneous closure of numerous contracts due to their inability to meet the margin requirements. This mass liquidation intensifies the price movement and triggers a chain reaction, leading to more contracts being liquidated.
Based on my extensive experience in cryptocurrency trading and analysis, I’ve noticed that bearish sentiment, indicated by a high level of shorting, can sometimes be followed by unexpected price surges in certain altcoins. This phenomenon was evident in the case of Cardano, Chiliz, and Fantom earlier this year. With my keen eyes on the market trends, I had observed a similar level of shorting for these three altcoins beforehand. However, the market took a surprising turn as each coin experienced significant price increases. Cardano saw a 10% surge, Chiliz skyrocketed by 32%, and Fantom astonishingly gained 49%. These events underscored the importance of staying attuned to even the subtlest shifts in market sentiment and being prepared for unexpected price movements.
Based on current market trends, I suspect that brief sell-offs may reoccur for certain altcoins, potentially triggering price rallies.
ADA Price
Previously, Cardano surpassed the $0.45 threshold, but subsequently, its value has dropped significantly. The cryptocurrency’s current price hovers around $0.39.
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2024-07-26 02:10