Altcoins experience strong gains, trigger short squeeze

Exceptional performance of alternative coins in comparison to Bitcoin and Ethereum might come to an end soon because of the funding rate normalising

By Shashank Bhardwaj

Published: Jan 10, 2023 04:57:54 PM IST

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After a period of little activity and reduced volatility, the crypto market saw a resurgence on Monday as coins with lower market values experienced strong gains, performing better than the more established currencies like Bitcoin and Ethereum.

Several smaller crypto saw significant gains in recent trading, including FTT, the token of a failed crypto exchange, which rose 55 percent in the past 24 hours despite being down 96 percent over the past year.

Other notable performers included Serum (SRM), the token of a decentralised exchange built on the Solana blockchain, which rose 28 percent, Zilliqa's native token ZIL, which gained 37 percent, and APT, the token of the Aptos blockchain project, which rose 30 percent.

The unexpected increase in crypto prices caught many traders betting on crypto prices to fall by surprise. In response, traders closed out $245 million worth of short positions within the past 24 hours. This was the largest daily liquidation of short positions since November 10th, when market volatility was caused by the struggles of the crypto exchange FTX.

The recent surge in crypto prices occurred after the largest crypto by market capitalisation, Bitcoin, regained a value of $17,000 after remaining relatively stable for three weeks, which helped to improve overall market sentiment.

This sudden price action was seen as a relief rally for smaller tokens due to the exhausted sellers and limited buying options. Popular crypto analyst Alex Kruger stated on Twitter that this price action was caused by a combination of factors, including year-end sales of alternative coins and derivative traders anticipating such sales. Additionally, shorts, or bets on price decreases, were also squeezed.

Historically, when small-cap tokens and meme coins experience strong gains, it is a sign of an impending downturn in the market, as traders tend to shift their profits from leading digital assets to these smaller projects and then sell them off.

However, crypto analyst Alex Kruger believes that the current recovery in crypto prices will continue and that it is similar to the early days of 2019 when the market bottomed out. He also stated that the exceptional performance of alternative coins in comparison to Bitcoin and Ethereum might come to an end soon because of the funding rate normalising.

Furthermore, he pointed out that it is still a bear market, so traders should be cautious.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash