What happened
The latest meme-token rally appears to be picking up steam today. As of 12:20 p.m. ET on Monday, Shiba Inu ( SHIB 12.71% ) had surged 14.4% higher over the previous 24 hours, outpacing the broader cryptocurrency market by a wide margin.
This move appears to be linked to short liquidations in the market. Today, the SHIB, SHIB1000, and 1000SHIB contracts saw $4.8 million in total liquidations, with the vast majority of these liquidations taking place on short positions.
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So what
As a highly popular meme token, Shiba Inu has seen broad investor interest, particularly from retail investors. There remains a significant contingent of Shiba Inu investors (the ShibArmy) who continue to hold SHIB tokens for the long term. While these retail investors can certainly affect the demand for this token, the reality is that Shiba Inu’s cryptocurrency remains much more volatile than the overall market due to the intense interest it receives from traders.
Using the aforementioned contracts, traders can place leveraged bets on the directional move in tokens such as Shiba Inu. Given the volatility with this particular token, these contracts often liquidate rapidly, causing outsize swings to the upside and downside. Thus, today’s directional move appears to be tied mostly to what can effectively be viewed as short covering in the crypto world.
Now what
Shiba Inu’s price action has been incredible to watch over the past couple of years. Indeed, this token perhaps exemplifies the extent to which derivatives can impact prices over the short term better than most other tokens.
I expect this to continue for some time, and while the momentum with Shiba Inu and the market in general remains positive, investors should remember that this volatility works in both directions.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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