Alert Short Squeeze Potential in 2 Cryptocurrencies with Negative Funding Rates
Following a significant downturn in the cryptocurrency market last week, a prevailing bearish sentiment now hangs over most digital assets, causing speculative imbalances and liquidity concerns. Notably, two cryptocurrencies currently stand out due to substantial short-selling activities, potentially setting the stage for a short squeeze.
For this assessment, Finbold analyzed data sourced from CoinGlass on July 7, focusing on the funding rates of major cryptocurrencies in the derivatives market, ranked by their highest open interest (OI).
Essentially, a negative funding rate indicates a higher open interest in short positions compared to long positions. Consequently, the exchange’s algorithm imposes an Annual Percentage Rate (APR) on short-sellers, incentivizing a market equilibrium.
Toncoin (TON) registers a negative funding rate of -26.65% as of July 7, highlighting a dominance of short positions. The native token of Open Network has faced criticism related to the Telegram crypto wallet, contributing to its bearish performance. Despite a significant surge earlier in 2024, the recent market correction prompted overdue price adjustments, triggering sell-offs. Positioned as a competitor to Solana (SOL), Toncoin leverages Telegram’s popularity to attract investors.
Despite the negative funding rate, Toncoin’s derivatives volume decreased by 43% over the last 24 hours, suggesting that the current $295.34 million open interest may not be sufficient to catalyze a short squeeze. The drop in volume indicates that short-sellers are closing positions despite the high annual cost of 26.65%.
On the contrary, Notcoin (NOT) has emerged as the eleventh largest in terms of open interest, witnessing a staggering 526% surge in volume. The token, with a market capitalization of $1.64 billion, exhibits an open interest of $219.59 million and an OI/MCap ratio of 0.1338.
Notably, Notcoin presents a notable 57.53% negative funding rate, significantly increasing the likelihood of a short squeeze. Integrated into the TON Blockchain and Telegram wallet, NOT is a play-to-earn token.
However, the heightened open interest and surge in volume for opening short positions typically bear a bearish outlook. Investors and traders seem to be betting on lower prices for Toncoin and particularly Notcoin.
If this sentiment persists due to fundamental factors and negative news, it could prevent a short squeeze, keeping prices on a downtrend. These highly shorted cryptocurrencies would require positive news and events to reverse the trend and potentially trigger a short squeeze.
Disclaimer: The information provided here should not be construed as investment advice. Investing in cryptocurrencies carries risks, and capital is at risk when investing.