Short squeeze alert for January 5: Two cryptocurrencies with potential to skyrocket

Volume is cooling off for the cryptocurrency derivatives market. Most projects have registered 50% losses on their 24-hour volume, which might diminish the expected daily volatility.

Nevertheless, the sharp observer can always spot a short-squeeze opportunity, even in low-volume scenarios. With that in mind, Finbold retrieved data from CoinGlass on January 5 to identify the most likely cryptocurrencies to suffer a short squeeze.

Essentially, a short squeeze happens when short positions get massively liquidated. These liquidations force purchases of the given cryptocurrency, driving the price higher, bringing new liquidations for even higher prices, and a spiral event.

SOL 3-day liquidation heatmap. Source: CoinGlass

Notably, the highest concentration is $111.56, after a series of smaller liquidity pools. Reaching this price target would mean a surge of 11% for SOL, which is currently trading at $99.98.

In the last 24 hours, traders opened $3.62 in short positions, accruing 51.27% of Solana’s daily derivatives volume. It is also notable that SOL lost 38% of its volume, higher than the average losses for the cryptocurrency market.

SOL derivatives volume data. Source: CoinGlass

Will XRP (XRP) skyrocket to short liquidations?

Meanwhile, the XRP (XRP) token lost 63% of its 24-hour derivatives volume, trading at $0.56 by press time. With a $1.39 billion daily volume, short-sellers dominate with $760.57 million (52.05%).

XRP derivatives volume data. Source: CoinGlass

Interestingly, the liquidation heatmap shows the results of both metrics. A low volume means less liquidity in the map, while short-seller domination weights the existing liquidity upwards.

This combination favors a short squeeze for XRP, although not enough to make the price skyrocket. In essence, a short-term liquidation event could drive the token’s price to as high as $0.613, with a most probable hit at $0.602.

XRP 3-day liquidation heatmap. Source: CoinGlass

Like SOL, XRP traders previously liquidated these pools on January 4 at around 21:00 (UTC), which is evidence of their relevance.

However, the low volume for both cryptocurrencies also means that this scenario could easily shift at any moment. If a significant volume for long positions surges in the market, liquidity could favor bulls’ liquidations and stop hunts, driving the price downwards.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.