Short squeeze alert for two cryptocurrencies; Is it high there?
The cryptocurrency market began October with a sharp decline, increasing pessimism among investors and attracting a wave of short sellers. Now, two cryptocurrencies in particular, Sui (SUI) and Celestia (TIA), are at risk of a short squeeze. In this phenomenon, short sellers are forced to buy the asset to close out their positions, resulting in a sudden price increase.
Recent data from CoinGlass shows that these cryptocurrencies have extremely high negative funding rates, signaling a possible market imbalance that could trigger this event.
Sui reached a record US$502.28 million in open interest on October 2, 2024, while its price was around US$1.85. This increase in the number of open contracts was mainly driven by short positions, reflected in funding rates that turned abruptly negative.
On October 4th, SUI recorded a record negative funding rate, trading at $1.69, which suggests that short sellers are paying a high cost to maintain their positions. This situation, combined with high speculation in the market, could create the perfect conditions for a short squeeze, especially if there is an unexpected increase in demand for the cryptocurrency.
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It is worth remembering that in August, SUI experienced a similar scenario, where imbalances in open interest and negative funding rates preceded a significant increase in price. Therefore, the current market context could indicate an imminent bullish move, provided demand for Sui increases in the short term.
Celestia, in turn, also shows clear signs of a possible short squeeze. On October 4, the TIA token recorded a negative funding rate of nearly 125%, the largest imbalance among the top 30 cryptocurrencies on the market.
This rate indicates that short sellers are paying exorbitant amounts to hold their positions, which could force them to close them in the event of a sudden change in market sentiment. However, this negative rate is nothing new for Celestia, which has faced worse imbalances in the past, as historical data shows.
Despite this scenario, the TIA remains dominated by short sellers, reflecting the pessimistic sentiment that has prevailed since July. Just like in the case of SUI, Celestia could experience a short squeeze if market sentiment changes and traders begin closing their short positions, which would result in a rapid increase in the asset's price.
While the high negative funding rates observed in SUI and TIA may indicate an imminent short squeeze, traders should proceed with caution.
Short positions often increase when an asset is overbought or when negative sentiment dominates the market. SUI, for example, has risen more than 100% recently, which may have triggered short selling. On the other hand, TIA has continued to face a pessimistic outlook since July, with its market activity still being dominated by sellers.