Chainlink’s (LINK) price continues to set new records as DeFi-linked token jumped 52% to a new all-time high at $ 13.8799 today.
In the past 24 hours, LINK has jumped 52%, from $ 9.05 to $ 13.8799 on the Binance exchange.
LINK-USDT daily chart. Source: TradingView.com
While Chainlink demonstrated a strengthening uptrend, its competitor Band Protocol (BAND), which also functions as a network for oracles, climbed 50% to a new all-time high at $ 12.44.
What is behind the Chainlink rally?
The sudden uptrend in LINK was probably caused mainly by the compression of short contracts in the futures market. As LINK steadily increased, its finance rate remained below 0%, hovering at -0.02%.
The cryptocurrency futures market uses a mechanism called “funding” to ensure market equilibrium. When the market is heavily influenced by buyers, buyers need to entice sellers and vice versa.
For example, if there is an overwhelming number of traders shorting Chainlink on Binance Futures, the funding rate would turn negative. In this situation, the holders of short contracts or sellers have to pay the holders of long contracts to maintain their positions.
In the past few hours, as LINK’s price skyrocketed, its funding rate on Binance Futures remained negative. This indicates that as its price skyrocketed, many traders were attempting to sell the asset short.
A continuous loop of short contracts caused a short squeeze, which in turn boosted purchase demand and fueled Chainlink’s momentum.
A pseudonymous trader known as Benjamin Blunts pointed out that while LINK is theoretically attractive to short, market sentiment is bearish. When the market is overcrowded on one side, which in LINK’s case was looking to sell the asset short, it tends to move in the opposite direction.
The trader said:
“Actually, I’d be inclined to start looking for shorts soon, but it looks like all my feed is doing the same. So I’ll just wait for another push higher, I think, not really interested in standing in front of the strongest, fastest horse right now.
Zeus Capital and their infamous LINK shorts
The biggest story around LINK during its entire rally revolved around Zeus Capital. The investment firm has publicly maintained a skeptical stance on Chainlink, expecting the price of LINK to drop sharply. On August 9, the company said:
“The ‘get rich quick’ story is a real indicator of manipulation. You can only win if you sell your $ LINK before it goes down to $ 0. ”
A cryptocurrency investor called “Light” suggested that Zeus Capital has a large short position in LINK, which was apparently in danger of being liquidated. He said:
“And in another poetic twist to Zeus Capital’s story, for the time being, due to delays in the pricing oracle of their Aave loan, even though LINK has exceeded its liquidation price, their short film DeFi remaining has not (yet) been liquidated.
It is still unclear if a single short seller could have a huge impact on a cryptocurrency with a daily volume of $ 2 billion on paper.