moment over

One of the dumbest, stupidest and amateur things you can do in cryptocurrencies right now is to short this market. Shorting things like Futures or Forex is different, you don’t pay a premium to use leverage and its as easy to short as it is to go long. For the majority of the ‘retail’ traders out there, shorting requires leverage, collateral, and more costs. Let’s go over why shorting this market is dumb.

  1. Cryptocurrencies have been trading at or near the calendar year lows and/or Year-over-Year lows.
  2. Cryptocurrencies are down 80% from their all-time highs.
  3. Cryptocurrencies are entering their seasonally bullish time period.
  4. Short interest in cryptocurrencies is at an all-time high.

Let’s go over #1 – trading 101 states, ‘New traders buy the highs and sell the lows.’ Basically, new traders do the opposite of what they know they should do, but they do it anyway.

Let’s look at #2 – If something is down 80%, especially an entire sector, that is the exact worst time to short. Ok, maybe if it was down 99% then that would be worse. But you catch my meaning.

Now #3 – It’s the season and time of year when all cryptos start to have the biggest percentage probability of a bull run.

Finally, #4 – The sheer amount of traders who are short the entire market is staggering. It’s nuts actually. If a trader is short on Bitcoin, then if prices move too high or his stop is hit, he has to buy Bitcoin to exit his short. This creates a cascade event where a group of people short get liquidated and automatically turn into buyers then push the price higher creating more incidents of shorts covering their positions. This creates what is known as a ‘short rally’. Essentially, the bears cannibalize themselves. And that’s what happened today. It was crazy:

Price Action Today

It was nuts. Depending on who you get data from, Ethereum had the biggest hourly trade period of all 2018 and Bitcoin was not far behind. Let’s break down what happened.

1245 CST – Prices are consolidating per normal, but some selling pressure appears without any buying.

1300 to 1345 – Massive sell off’s on the 15-minute charts show wickless candlesticks throwing price lower until finally settling above 6k. At the same time, BTCUSDShorts moves to near all-time highs and breaks a trendline to the upside. Hell, it actually gaped up on the hourly chart. Panic ensues.

91918btcshorts 1

BTCUSDShorts chart – bears getting slaughtered

1400 – Insanity. Bears clearly attempt to push lower towards 6k but prices pretty much stop dead – then BAM, huge spike to 6250.

1415 – More insanity. Bears are getting slaughtered. Short squeeze starts as bears are forced to liquidate. BTCHUSDShorts continue to increase! Bulls and bears battle a the 6500 level and settle near 6400.

1430 – Normal selling occurs, BTCUSDShorts begin to selloff, initiating another, smaller squeeze. Prices continue to consolidate around the 6400 value area.



What does this mean?

This could very well be the turning point for the year and the end of the bear move. Time will tell – but a lot of shorts got burned today, we’ll see if those bears come out to short this market again.