What’s behind the Chainlink rally?
The sudden uptrend of LINK was likely caused primarily by the squeeze of short contracts in the futures market. As LINK was continuously rising, its funding rate stayed below 0%, hovering at -0.02%.
The cryptocurrency futures market employs a mechanism called “funding” to ensure the market is balanced. When the market is heavily swayed toward buyers, then buyers have to incentivize sellers and vice versa.
As an example, if there is an overwhelming number of traders shorting Chainlink on Binance Futures, then the funding rate would turn negative. In this situation, short contract holders or sellers need to pay long contract holders to maintain their positions.
Throughout the past several hours, as LINK price soared, its funding rate on Binance Futures remained negative. This is indication that as its price was soaring many traders were attempting to short the asset.
A continuous loop of short contracts caused a short squeeze, which, in turn spurred buying demand and fueled Chainlink’s momentum.
Massive Short Squeeze Prompts Chainlink (LINK) Price to Rally 52%, CoinTelegraph, Aug 10
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