The weekend has started well again for Bitcoin. The price got a kick in the right direction last night and is at the time of writing 21,500 euros. What is going on?
Bitcoin in 2023
This is not how it should work. Yesterday it was announced that one of the larger crypto companies is a bankruptcy filing has submitted. That is bad news for crypto and bad news usually has an impact on the price development.
One of Bitcoin’s New Year’s resolutions is to ignore bad news. Bitcoin apparently pulls its own course. Since November 7, the Bitcoin rate not been that high.
Asians are pulling Bitcoin cart
It seems that the increase was mainly caused by traders in Asia. The increase started around midnight for us, and then the major Asian economies are just waking up.
Skew, an analyst who made his reflections via Twitter shares confirms that Asia is leading the way this weekend.
Another rally driven by a bid from Asia. TWAP buyers absorb selling pressure from MMs. Offers to lift bids in big places & demand wall drawn ahead of another short squeeze.’
Huh?
Time to dissect these words. TWAP is a strategy of big buyers, they want to buy a lot of Bitcoin, but influence the price as little as possible. This can be done by dividing that large purchase into smaller portions.
Skew also talks about MMs, which are Market Makers. These parties buy and sell Bitcoin at the then valid rate. Most traders on exchanges make an offer above or below the price (depending on whether to sell or buy), and hope that someone will follow suit.
TWAP buys sell orders from MMs, causing the price to rise slightly, and the next sell order to be slightly higher. According to Skew, this has caused a short squeeze.
Bitcoin also has losers
Where money is made, money is also lost. With Bitcoin it is also possible to gamble on a price increase (going long) or a price decrease (going short).
Many investors expected that the price increase after last week could no longer continue. They went short on bitcoin. If you go short, you sell your bitcoin at market value. Later, you hope to buy back the same number of bitcoins for a lower price.
But the opposite happened: the price actually rose. Investors often set a stop loss order with a short, which means that they automatically buy back the bitcoin at a certain price.
If enough stop loss orders are hit, the price rises slightly, so that more stop loss orders are hit and the price rises again, etc. Short positions are squeezed like a lemon and this phenomenon is called a short squeeze.
The total value of closed positions in the last 24 hours is just under EUR 275 million, of which 225 million euros is from closed short positions.
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