Curve (CRV) jumps 7% when short squeezes

The Curve DAO token (CRV) has seen a 7% jump during the past 24 hours as there has been massive liquidation of small traders in the market.

Curve funding rates turn highly negative after price drop

According to data from on-chain analytics firm EmotionRecently, an excessive amount of shorts had accumulated on the cryptocurrency exchange Binance. The relevant indicator here is the “funding rate”, which tracks the periodic fee that Curve Perpetual contract traders on a specific exchange are paying each other right now.

When this metric has a positive value, it means that long contract holders are currently willing to pay a premium to short contract holders to maintain their positions. Such trend implies that the bullish sentiment is held by most of the investors.

On the other hand, the negative values ​​suggest that a bearish mindset is the dominant force in the market at the moment as the shorts are charging a fee from the longs.

Now, here is a chart showing the trend in the Curve funding rates on cryptocurrency exchange Binance over the past month:

The value of the metric seems to have been quite red not too long ago | Source: Santiment on Twitter

As displayed in the graph above, the Binance Funding Rate curve recently assumed a negative value as the price of the cryptocurrency was trending down.

The asset’s price drop was caused by all the FUD in the broader crypto space, such as the SEC charges against Binance and Coinbase, or the Fed interest rate decision, while the other factor was CRV-specific uncertainty.

The root cause of this FUD is the fact that the founder of Curve Finance took out a huge loan against a wallet that currently holds around 30% of the entire circulating supply of the token. As the price of the asset has taken a hit recently, concerns regarding the liquidation of this position have risen in the market.

Since the wallet holds such a significant portion of the cryptocurrency’s supply (288.7 million tokens to be exact), a potential liquidation could have cascading consequences for the project.

From the graph, it is visible that the Binance funding rate turned extremely red as this FUD spread around. This means that the sentiment on the exchange had turned quite bearish.

Historically, whenever traders have leaned heavily in a particular direction, the market has actually shown a sharp move in the opposite direction.

The reason behind this is a phenomenon called squeeze, which occurs when there is a sudden movement in prices and causes a large amount of liquidation.

These liquidations only end stated price swings, causing even more liquidations in the market. In this way, liquidation can occur simultaneously like a waterfall during the squeeze.

In the graph, it is visible that after the funding rate turned very negative, the indicator suddenly started to move in the other direction, and now it is already slightly positive.

This suggests that there has been a minor decrease in the market, as all the shorts that had accumulated have been washed out. The Curve price has bounced off this pressure, registering an increase of around 7%.

crv value

At the time of writing, the Curve DAO token is trading around $0.61, down 20% over the past week.

Looks like the asset has seen some recovery | Source: CRVUSD on TradingView

Featured images from iStock.com, Charts from TradingView.com, Santiment.net