LONDON — The huge spike in bitcoin’s price on Tuesday may have been driven in part by a squeeze on leveraged short sellers, according to market commentators. Bitcoin jumped over $600, or around 10%, in a short amount of time in afternoon US trade on Tuesday.
The cryptocurrency broke above $7,000 for the first time in around a month thanks to the rally. It remains above that level on Wednesday, trading up 1.13% against the dollar to $7,397.86 at 12 p.m. BST (7 a.m. ET).
Tuesday’s rapid price surge didn’t appear to be correlated to any immediate news and some market commentators have pinned the rise on a short squeeze. “The assumption is this is a combination of some sort of short squeeze and some new money coming in [to the market],” Mati Greenspan, an analyst with trading platform eToro, told Business Insider in a phone interview on Wednesday.
A short squeeze occurs when short sellers — who have bet against bitcoin’s price hoping to profit from declines — are forced to buy bitcoin to cover their positions. Short bets can have nearly unlimited losses — or profits if they go right — and so investors buy the underlying asset to close out their position.
Analysts at startup London Block Exchange said in their Wednesday morning market email: “While over the past few months we’ve seen several stop runs aimed at liquidating longs, it seems these fast price moves are being propelled by the cascading reactions caused by short orders closing, i.e. those who were betting against the market being forced to exit their positions.” Read more from businessinsider.com…
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