Major cryptocurrencies rallied in the last 24 hours, reversing some of Thursday's decline and adding 13% to the total market cap, even as an indicator of market sentiment slipped from yesterday's levels.
Cardano's ADA jumped as much as 40%, leading gains among the largest cryptocurrencies. BNB Chain's BNB surged 30%, Solana's SOL jumped 25%, and XRP surged 22% during the Asian morning. The rally came as Bitcoin (BTC) and Ether (ETH), the two largest cryptocurrencies, each gained over 12%. Most of the largest cryptocurrencies rose at least 25%, with ApeCoin (APE) rising as much as 57%.
It is possible that traders thought cryptocurrencies were oversold and bought assets after a dramatic sell-off. This week, the total market capitalization dropped by about 30%, CoinGecko data shows.
"After being heavily oversold over the past few days, altcoins rallied by double digits over the past 24 hours," FxPro market analyst Alex Kuptsikevich said in an email. "This could be both the start of a longer buying wave and a trap for the bulls."
The cryptocurrency fear and greed index fell 2 points to 10 by Friday and remains in "extreme fear," but it largely ignores the optimism of recent hours. Therefore, the current low level of the indicator may also attract 'buy when you're scared' buyers," Kuptsikevich said.
Cryptocurrencies have fallen sharply this week amid systemic risks both inside and outside the market. Concerns about high inflation and weak CPI data in the U.S. hit bitcoin prices, while terraUSD (UST) - a stablecoin that will be pegged to the U.S. dollar - fell to a low of 22 cents. Investors took risk off the table, causing bitcoin to briefly fall to nearly $24,000 on Thursday.
Part of the rally in the last 24 hours may be due to what is known as a short squeeze. This occurs when traders who have bet on falling prices need to buy assets to cover their bearish positions, known as short positions. In a short position, traders borrow an asset to sell it, hoping to buy it back at a lower price and make a profit on the difference when they return it to the lender. If prices rise, they lose money, and buying to limit their losses reinforces the bull market dynamic.
Futures data show that about 64% of traders went short in the last 24 hours, raising $266 million in liquidations, which may have contributed to a price spike amid a potential short squeeze.