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Bitcoin rises as cryptocurrencies try to rebound after a significant sell-off

Bitcoin rises as cryptocurrencies try to rebound after a significant sell-off

February 28, 2022: -On Friday, Cryptocurrencies increased following a steep sell-off a day earlier that saw nearly $150 billion wiped off the market after Russia invaded Ukraine.

Bitcoin was trading nearly 9.4% higher at $38,709 at 6:54 a.m. ET, according to Coindesk data. The largest cryptocurrency in the world has increased above $39,000 in 24 hours. Bitcoin had decreased as low as $34,338.57 on Thursday.

Other digital coins, including ether and XRP, also saw solid gains.

Thursday’s sell-off was sparked by Russia’s invasion of Ukraine that, which also saw global stocks decrease sharply. Bitcoin’s price move has more correlated closely with other risk assets such as stocks, as more institutional investors get involved and short-term investors who trade bitcoin as another risk equities have entered the market.

On Thursday, a stunning intraday reversal in U.S. stocks led significant indices to close higher. That positive price movement has filtered through to cryptocurrencies.

But the huge cryptocurrency rebound could also result from a so-called short squeeze, according to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.

“Given the situation unfolding in Ukraine, market participants generally went short BTC to protect downside risks. This was defensive positioning essentially,” Ayyar said.

When investors go short, they are essentially betting on the cryptocurrency’s price going down.

Traders will be able to short bitcoin by buying a futures contract that bets on a lesser price of the cryptocurrency than where it is trading when they purchase that contract. These usually have an expiry date at which they can be sold.

Also, cryptocurrency exchanges offer traders products that allow them to buy bitcoin via contracts that don’t have an expiry date. These are called perpetual contracts.

A trader betting that the price of bitcoin will go down would sell a contract with the hope that it drops so they can repurchase it at a lower price and pocket the difference. If the cost of the contract goes higher and a trade closes out their position, they have to buy that contract back at a higher price.

That can push the bitcoin price upwards, which results in a short squeeze.

That trader may also borrow so they don’t have to put in 100% of the contract’s money. But they need to constantly fund the position to keep it open with a minimum amount of money. When that minimum amount cannot be financed, an exchange may close that position. Or traders may close their short positions themselves.

Ayyar further added that this is the primary driver for the move higher in bitcoin and other cryptocurrencies.

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