Crypto Market Faces Short Squeeze Risk for BNB Chain, Bitcoin Cash

Traders await direction for the cryptocurrency market, while short-selling open interest indicates potential short squeezes for BNB Chain (BNB) and Bitcoin Cash (BCH). BNB's high funding rate of 56.44% and BCH's steady negative rate of 12% suggest market imbalance. Liquidation heatmaps for BCH reveal liquidity pools at $600-$650 and above $700, but traders are advised to proceed with caution and consider the need for positive sentiment to trigger liquidations.

Cryptocurrency Market Poised for Short Squeeze on BNB Chain and Bitcoin Cash

The cryptocurrency market has exhibited sideways trading in recent days, leaving investors seeking guidance on its future direction. However, data analysis reveals potential short squeeze risks for two prominent cryptocurrencies: BNB Chain (BNB) and Bitcoin Cash (BCH).

Short Selling and Liquidation Mechanisms

When cryptocurrency traders engage in short selling, they deposit collateral and agree upon a liquidation price higher than the position's opening price. If the asset's index price reaches this threshold, the exchange forcibly closes the position and seizes the collateral.

To maintain market equilibrium, derivatives exchanges establish a funding rate based on the long/short ratio. When short positions outnumber long positions, short sellers must pay a funding rate premium to long-position traders. This poses a liquidation risk, as the collateral is gradually depleted during the typically 8-hour interest payment intervals.

BNB Chain's High Funding Rates

BNB Chain (BNB) has experienced significant shorting activity in the wake of allegations involving Changpeng Zhao, Binance's former CEO and BNB's creator. This bearish news has created a substantial market imbalance, increasing the likelihood of a short squeeze before any further downward trend.

BNB currently holds the fifth-highest open interest among all cryptocurrencies and boasts the highest negative funding rate of 56.44%. Historically, such extreme negative funding rates have triggered short squeezes, resulting in short-term upward price movements.

Bitcoin Cash's Short Squeeze Potential

Bitcoin Cash (BCH) has also been subject to a substantial negative funding rate, which has remained steady this week. At present, BCH short-sellers are paying over 12% interest to long-position traders, the second-highest rate among major cryptocurrencies.

The Bitcoin Cash liquidation heatmap highlights two key liquidity pools that could serve as targets for a short squeeze: the $600-$650 price range and the $700 level.

Cautious Optimism Warranted

While the elevated negative funding rates and accumulated liquidations suggest the possibility of a short squeeze, traders should exercise caution. A price surge is necessary to trigger these liquidations, which hinges on positive market sentiment.

Cryptocurrency traders must meticulously consider various factors to make informed decisions. They should maintain vigilance and implement robust risk management strategies.

Disclaimer

The information presented in this article should not be construed as investment advice. Investing in cryptocurrencies carries inherent risks, and the value of your capital is at peril.