A massive contraction caused the price of Chainlink (LINK) to rise by 52%

The price of Chainlink (LINK) continues to set new records as the DeFi related token increased by 52% to reach a new all-time high of USD 13.8799 today.

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In the last 24 hours, LINK increased by 52%, rising from USD 9.05 to USD 13.8799 in Binance.

When Chainlink showed a strong upward trend, its competitor Band Protocol (BAND), which also operates as an oracle network, shot up by 50% to reach a new all-time high of USD 12.44.

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What’s behind the Chainlink rise?

The sudden upward trend of LINK was probably caused mainly by the contraction of short contracts in the futures market. As LINK was rising continuously, its funding rate remained below 0%, at -0.02%.

The crypto currency futures market employs a mechanism called „funding“ to ensure that the market is balanced. When the market tilts strongly towards buyers, buyers have to encourage sellers and vice versa.

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For example, if there is an overwhelming number of traders shorting Chainlink at Binance Futures, then the funding rate would become negative. In this situation, short contract holders or sellers must pay long contract holders to hold their positions.

Over the last few hours, as the price of LINK skyrocketed, its funding rate at Binance Futures remained negative. This is a sign that as its price skyrocketed, many traders were trying to sell the asset short.

A continuous loop of short contracts caused a brief contraction, which in turn stimulated buy demand and fed the momentum of Chainlink.

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A pseudonymous trader known as, Benjamin Blunts, emphasized that while LINK is theoretically attractive for short positions, market sentiment is bearish. When the market is overcrowded on one side, which in LINK’s case were bearish traders looking to sell the asset short, this tends to move in the opposite direction.

The trader said:

„In fact, I’d be inclined to start looking short soon, however, it seems that all my feed is doing the same thing. So I think I’ll wait for another higher push, I’m not really interested in standing in front of the strongest and fastest horse right now“.