How can short selling affect the price and volatility of cryptocurrencies?

1 answers

• Feb 17, 2022 · 3 years ago
  Short selling can impact the price and volatility of cryptocurrencies by introducing additional selling pressure into the market. When short sellers sell borrowed cryptocurrencies, they create a supply of coins that exceeds the demand, leading to a decrease in price. This decrease in price can trigger a chain reaction as other traders may also sell their holdings, further driving down the price. As the price declines, volatility can increase as traders react to the changing market conditions. It's worth noting that short selling is a common practice in traditional financial markets and can serve as a mechanism for price discovery. However, in the relatively young and speculative cryptocurrency market, short selling can have a more pronounced impact on price and volatility.
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