Litecoin (LTC) defied the general sluggishness of proof-of-work (PoW) coins this week, rising 4% to a two-week high of $86 on April 26. analysts predicting a bullish run towards the $100 mark.
Litecoin Bulls flex their muscles
While other cryptocurrencies have struggled to gain momentum this week, Litecoin the bulls managed to advance slightly. This unexpected rally added a significant $190 million to Litecoin’s market capitalization, showing renewed investor interest in digital silver.
Market observers attribute the increase to a confluence of factors. Firstly, a significant number of traders are betting big on Litecoin’s continued rise, evident in the overwhelming leverage applied in the derivatives market.
Data from Coinglass reveals bullish sentiment, with the value of leveraged long positions exceeding short positions by a notable margin. This optimistic outlook puts immense pressure on short sellers, who could incur heavy losses if the price continues to rise.
Source: Coinglass
Short squeeze appears when price reaches $100
The current price action suggests that a short squeeze may be forming. Short sellers borrow LTC tokens and sell them at a higher price with the expectation of buying them back later at a lower price to pocket the difference.
However, if the price goes up instead of down, they will be forced to repurchase LTC at a loss to cover their positions. This buying activity to mitigate losses pushes the price even higher, creating a snowball effect.
LTC is currently trading at $84.42. Chart: TradingView
Analysts estimate that a price increase of just 10%, boosting LTC to $96, could trigger liquidations worth $16 million for short sellers. On the other hand, bullish traders have accumulated long leveraged positions in excess of $16 million around the current price. This leverage disparity empowers bulls to potentially drive the price towards the coveted $100 milestone in the coming days.
Volatility Ahead: A Word of Caution
Although the short-term outlook for Litecoin appears optimistic, experts advise caution. The current rally appears driven primarily by speculation and leveraged trading, not necessarily fundamental advances in the Litecoin ecosystem.
This dependence on market sentiment makes the price susceptible to fluctuations. If the bullish momentum fades, a price correction could trigger significant liquidations of overleveraged long positions, causing a reversal.
The next few days will be crucial in determining whether the bulls can maintain control and push LTC towards $100, or if the bears regroup and trigger a reversal of fortunes.
Featured image from Pexels, chart from TradingView
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