Bitcoin’s resurgence raises questions about a potential altcoin rally, with FTX creditor concerns in the backdrop.
Recent upward movement in the price of Bitcoin has even increased optimism for short-term forecasts. However, some people worry about a rally in altcoins that have already been shorted.
As the price of bitcoin rises, forecasters become more upbeat, but altcoins should be avoided
The cryptocurrency market has been rocked by Bitcoin’s recent resurgence in the face of worries about FTX’s creditors being liquidated.
The unexpected Bitcoin (BTC) rise may soon prove to be the downfall of altcoin bearish, leading to a big rally in previously shorted altcoins like Solana (SOL).
Leveraged liquidations and sharp price spikes could occur in the altcoin market if Bitcoin regains ground and climbs.
Following an earlier in the week brief dip below the crucial $25,000 support level, Bitcoin has displayed surprising resiliency, surging more than 6% and moving closer to the $26,600 milestone.
What might be blamed for the bullish predictions and price rise of Bitcoin?
BTC’s price recovery can be partially linked to encouraging economic data from China, such as the country’s strong retail sales and industrial production numbers for August.
The financial markets’ risk appetite has been rekindled by these promising developments, creating the ideal environment for major cryptocurrencies to continue appreciating in value.
Alternative cryptocurrencies like XRP, Ether (ETH), Solana (SOL), Tron TRX, and Dogecoin (DOGE) typically follow in the footsteps of Bitcoin, which is a well-known pattern in the world of cryptocurrencies.
The cryptocurrency recovery this time around, meanwhile, is more significant. It follows a rush of sales of these tokens as investors speculated on the likelihood that the now-defunct FTX exchange would obtain court authority to sell the assets of its massive cryptocurrency holdings, which are estimated to be worth billions.
When it was discovered that FTX possessed Solana tokens valued at roughly $1.6 billion that fateful Monday, Solana in particular took the brunt of this unfavorable sentiment, falling more than 8%.
Altcoin bears who had placed bearish leveraged positions on assets like Solana are now in a perilous situation because to the spectacular comeback that Bitcoin has had since that time.
Exchanges intervene to liquidate positions when the market goes against a trader’s negative bets, frequently resulting in a decline in margins. Forced liquidation occurs when a trader neglects to increase more margin.
Forced asset liquidation
Inadvertently creating the conditions for a bullish increase in the price of Solana brought on by a short squeeze is the imminent threat of forced liquidation for these short bets.
A short squeeze happens when the price of an asset rises quickly, causing short sellers to settle their positions by buying the asset back, which starts a spiraling cycle of price increases.
This impending risk was emphasized by Ilan Solot, co-head of digital assets at Marex Solutions, who said:
“The biggest short-term risk (pain trade) is positive: short-term hedging of altcoins leading to leveraged liquidations that drive the whole complex up. SOL is a good risk to watch out for, e.g.”
Finally, the bitcoin market is once again showcasing its innate volatility and ability to reverse trends quickly.
Altcoin bears may be busy hedging their positions as a result of bitcoin’s unanticipated surge in the face of FTX creditor worries.
After bearing the weight of these worries, Solana is prepared to profit from a rally that could be sparked by short squeezes. The market dynamics in the cryptocurrency space continue to be unpredictable, with many opportunities and dangers to be aware of.
Investors and traders need to be on the lookout for changes in the bitcoin market and adapt accordingly.
