Bitfinex's data shows that ETH short positions have fallen by more than 75%, from about $320,000 in early February to today's $74,500, the lowest since Bitfinex opened its ETH contract in August 2017. Last December, with the massive sell-off in the cryptocurrency market, short positions reached an all-time high of $430,000. Compared with a few months ago, the market sentiment has changed a lot.
The number of short positions is usually negatively correlated with the price of the underlying asset: when one begins to rise, the other begins to fall. As can be seen from the above chart, the ETH short positions on the exchange almost quadrupled between November and December due to the fall in the price of the entire digital currency market. In November last year, Bitfinex's short positions increased by about $150,000 in the ongoing BCH fork. Then, as ETH fell below the $100 mark, on December 6, short positions increased again.
Bitcoin is also a similar situation. The number of BTC short positions also fell to its lowest level since early August 2018. The BTC short position declined before the initial deadline for the VanEck-SolidX ETF application, but increased by more than 120% when the US Securities and Exchange Commission postponed its decision. After last week's "bitcoin boom", short positions fell again.
Bitfinex currently supports 3.3 times leverage. Since not all traders use this leverage cap, the data presented here may be an exaggerated reflection of market realities.
Despite this, the reduction in short positions means that more and more traders expect that prices of ETH and BTC will continue to rise in the short term. The leveraged trading market seems to tell us that last week's rise may just be a warm-up. However, it should be noted that market sentiment may change in an instant.