Short Squeezes in Crypto or Why $UNFI went up 2000% in a day
Unfi was by far the biggest gaining major cap token in crypto yesterday, with a sudden increase in value of 2,000% and then a crash to make the daay return closer to 200%. This massive price increase seems entirely irrational, another case of crypto markets doing what crypto markets do: whatever they want. However, if you look underneath the service, this is not the case. $UNFI, like other tokens such as $Waves, $Ocean, and a few others are available for trading on Binance’s futures platform. This means that while $UNFI was going through an unparalleled decline, there was a large amount of users that had highly leveraged shorts which were accumulating profits at the same time. This created a relationship where as $UNFI decreased in value, the value of these positions grew (the more $UNFI decline the more the shorters made). In many cases as it fell aggressively shorters would likely up their leverage. This meant that, if the price of $UNFI was pushed upwards, all off these incredibly valuable positions, worth approximately 25–30% of the entire MC would be exercised as positions would be forced to liquidate. For contex, this is the equivalent of a $54 billion dollar buy on Ethereum. With $UNFI, which had lower trading volumes and a small ratio between sells/buys, this was huge.
(Ratio of accounts by long/short position)
Seeing this, it is very likely that an investor setup large LONG leveraged positions with $UNFI and then aggressively bought up the token all at the same time. Because of how binance futures work, a single aggressive green or red candle can force a cascade of liquidations realizing sells or buys (depending on which way the candle goes). The buyer realized that by forcing the price up aggressively in the course of roughly an hour, they would effectively secure exit liquidity at the expense of those that were short. IE a classic short squeeze. After this squeeze was done, the buyer would realize their leveraged positions, forcing sells and realizing their gains but also pushing the price of the crypto down. This can be seen in the sudden collapse of the price and the decrease in long positions. Here is some data to back my claims.
The major increase in open interest correlates with the peak price (found at roughly 7:25). This suggests the value of major and leveraged long positions increased dramatically at the same time as the price increased.
Traditional Chart and Long Chart side by side (log is nice because of sheer % changes)
At the end of the day, this means the buyer likely made millions of dollars, as at the peak the interest was worth $191 million. Even if they were only able to 10%-20% of this, that means the buyer made as much as $19–38 million. Not bad for a day’s work, even if it is an illegal squeeze.
