Traders who bet against Bitcoin lost hundreds of millions of dollars last week, showing a steep turnaround after a tough year for the cryptocurrency.

A report issued by BitStacker revealed that $386.74 million (£313.32m) in Bitcoin short positions was liquidated between 10 to 16 January 2023, occurring at exchanges such as Binance, OKX, Bybit, Huobi, Bitmex, Heribit, CoinEx, and Bitfinex.

14 January was the worst day for Bitcoin liquidations, with traders betting against Bitcoin losing $141.01m (£114.24m) building upon a growing trend for investors to lose when shorting the cryptocurrency over the previous four days.

The trend was reversed just the next day, 15 January, when the overall liquidated Bitcoin amount was just $6.86m (£5.56m), although the figure started to rise again the next day. 16 January saw $30.95m (£25.07m) lost by traders betting against the cryptocurrency.

The near $400m loss typifies the risky business of short-selling the volatile currency, where traders will bet the value of an asset will fall.

Short selling strategies often come in the form of leveraged trading, where a trader will borrow third party funds to buy an asset, but also required investors to put up an initial margin as an insurance if the trading backfires.

Essentially, last week the trading backfired, resulting in the massive losses as traders’ leveraged positions were closed after losing their initial margins.

Traders likely expected Bitcoin to continue the decline it suffered through for most of 2022, but with Bitcoin enjoying a market cap rise of almost 25% in one week, it further emphasizes the risk of shorting cryptocurrencies.

Bitcoin broke the $21,000 (£17013.36) mark on Monday 16 January, a massive jump from the $16,000 (£12962.56) is started 2023 with.

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It is uncertain how long the current upswing will last, which makes short-selling in bitcoin that much more unpredictable.

This uptick in Bitcoin’s fortune comes after what’s been a tumultuous year for crypto, punctuated by the high-profile collapses of Terra Luna, 3AC and most, recently, FTX. All of these, along with an ongoing crypto winter and looming regulation has seen the idea of adopting short positions fairly attractive. 

However, the cyclical nature of Bitcoin’s valuation has offered a few hints to the token’s robust nature. Though it’s doubtful that this herald’s the beginning phases of crypto bull run, it does show that there’s faith in Bitcoin, despite it being declared ‘dead’ over 200 times in the last five years.

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