Can Spike In Short Selling Act As 'Rocket Fuel' For XRP And Cardano? Here Is What This Analyst Firm Says

Investors increased their bearish bets on prominent cryptocurrencies such as XRP and Cardano Wednesday, raising the prospect of gains in the event of liquidation.

What Happened: According to on-chain analytics firm Santiment, XRP and Cardano witnessed heavy shorting following a temporary bounce due to the SEC’s decision to withdraw the security probe into Ethereum ETH/USD.

That said, traders didn't find confidence in the relief rally, with most preferring to short the two altcoins.

📈 Cardano and XRP are a couple of the most notable altcoins that are seeing heavy trader shorting following relief bounces. This is a good sign for patient bulls, as liquidates shorts can effectively act as 'rocket fuel' for continued price rises. pic.twitter.com/lHdMCLbngR

— Santiment (@santimentfeed) June 19, 2024

Data showed the "most prominent" shoring vs longing ratio for ADA in the last nine months, while XRP's bearish to bullish bets ratio rose the highest in over a month.

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The heavy shorting created downward pressure, with both coins trading in the red late Wednesday night.

Cryptocurrency	Gains +/-	Price (Recorded at 11 p.m. EdT)
XRP XRP/USD	-1.21%	$0.3864
Cardano ADA/USD	-0.56%	$0.4925

However, Santiment interpreted this as a "good sign" for bullish traders. If the market moves against these positions, it could lead to significant liquidations and short squeezes, i.e., short sellers closing their positions.  

Since short sellers exit their positions with buy orders, this event can push the price further up, effectively acting as "the rocket fuel."

Why It Matters: These observations come on the heels of a sharp surge in Open Interest, particularly for XRP, leading analysts to forecast a bullish pivot. 

In the last 24 hours, the OI in XRP futures rose 0.78%, according to Coinglass. Similarly, ADA's OI rose 0.16% over the last 4 hours. An increase in OI, coming alongside a dip in price, reflects the opening of new short positions. 

Photo Courtesy: Diamond Visuals On Shutterstock.com

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