In a week where Proof-of-Work (PoW) coins have struggled to find their feet, Litecoin (LTC) has rebelled against the trend, climbing steadily by 4% to a two week high of $86 on April 26. This unexpected surge has caught the shorts off guard, sparking the possibility of a short squeeze, and fuelling speculation among analysts for a bullish charge towards the landmark $100 mark.
In a market that seemed choked by stagnation, Litecoin bulls have demonstrated their strength by nudging slightly ahead. This surprise rally has seen Litecoin’s market capitalization enriched by a hefty $190 million, signifying a fresh wave of investor interest in this digital silver.
Observers of the market believe that this rise is driven by a combination of influences. Chief among them is the substantial volume of traders rooting for Litecoin’s continued ascent. This optimism is clearly reflected in the unprecedented leverage being used within the derivatives market.
Numbers from industry leader Coinglass depict an overwhelmingly positive sentiment, with traders taking long leveraged positions outstripping those going short by a substantial margin. This scenario builds serious heat on short sellers who face the prospect of notable losses if Litecoin continues its climb.
Of course, as every informed trader knows, the conditions are ripe for a short squeeze. Short sellers borrow LTC tokens and sell them high, hoping to buy them back at a lower price thereby making a neat profit. However, their strategy backfires if the price continues to rise. Then, they are compelled to buyback LTC at a loss to cover their positions, giving a further fillip to the rising price.
Currently, LTC is changing hands at $84.42 and analysts believe that a small push of a 10% increase in price, propelling LTC to $96, could lead to short sellers liquidating their positions. This could result in a loss worth $16 million. On the other side of the coin, bullish traders have piled up leveraged long positions exceeding $16 million around the current price point. This disparity in leverage provides the bulls with significant potential to drive the price towards the coveted $100 milestone.
However, a note of caution is warranted. Even though the short-term prospects for Litecoin seem positive, experts advise exercising restraint. The current rally is predominantly powered by speculation and leveraged trading, not necessarily by any fundamental improvements within Litecoin technology.
The price, therefore, remains vulnerable to market sentiment and could swing either way. If the bulls lose steam, it could result in a price correction and lead to considerable liquidations of leveraged long positions, causing a market reversal.
As such, the upcoming days are vital in ascertaining whether the bulls can maintain dominance and catapult LTC to $100, or the bears regroup, sounding the retreat and compelling a reversal in fortunes for the maverick cryptocurrency.