I. Introduction
On the evening of February 21, Beijing time, the globally renowned cryptocurrency exchange Bybit was hacked, resulting in the theft of over 400,000 ETH and stETH, with a total asset value exceeding $1.5 billion. This incident triggered severe turbulence in the cryptocurrency market, with Bitcoin's price experiencing multiple drops within 24 hours, falling below $95,000 per coin, and over 170,000 investors globally facing liquidation. Zhu Su pointed out on social media that a large number of traders opened short positions due to the panic caused by the Bybit theft, which may create an opportunity for ETH to reach a historical new high (short squeeze). This report will analyze the impact of the incident on the market and the future trend of ETH in depth.
II. Overview of the Bybit incident
I. Incident overview
On February 21 at 20:30, Bybit detected unauthorized activity in its Ethereum cold wallet during a routine transfer. This transfer was part of a planned move of ETH from the multi-signature cold wallet to a hot wallet; however, the transaction was manipulated by a complex attack, altering the smart contract logic, hiding the signature interface, allowing the attacker to control the ETH cold wallet, and transferring over $1.5 billion in assets to an unknown address.
II. Market response
After the incident was exposed, the cryptocurrency market collectively declined. Bitcoin experienced multiple sharp drops within 24 hours, falling below $95,000 per coin, with a low of $94,830.3 per coin; Ethereum plummeted 6.7% within 24 hours, while Dogecoin, TRUMP coin, Cardano, Ripple, SUI coin, and others fell over 4%. According to CoinGlass data, nearly 170,000 people in the cryptocurrency market were liquidated in the past 24 hours, with a total liquidation amount of $572 million, including $330 million in long positions and $240 million in short positions.
III. Short positions under panic sentiment
I. Reasons for the surge in short positions
1. Trust crisis in exchanges: As one of the largest cryptocurrency exchanges in the world, Bybit has a daily trading volume exceeding $36 billion. This theft incident has led investors to question its safety and stability, worrying about asset losses, prompting them to open short positions to hedge risk.
2. Spread of market panic: The cryptocurrency market itself is highly volatile, and the theft at Bybit, the largest theft incident in history, has intensified market panic, with investors seeking safe havens; short positions have become a means for them to protect their assets in a turbulent market.
II. Scale and distribution of short positions
Although no authoritative institution has published specific short position data yet, it can be inferred from the changes in trading volume and open interest on cryptocurrency trading platforms that the scale of short positions has significantly increased. On major trading platforms, the short open interest for ETH futures contracts has risen sharply, especially in the hours following the Bybit incident, where short opening volume surged. The proportion of ETH short positions on some trading platforms rose from around 30% previously to as high as 40% - 50%.
IV. Analysis of the principle and possibility of short squeeze
I. Principle of short squeeze
Short squeeze refers to when the price of an asset rises, forcing short investors to buy assets to close their positions to avoid further losses, which further pushes the price up, creating a vicious cycle. When a large number of shorts flood the market, once market sentiment reverses, the demand for short covering can become a strong driving force for price increases.
II. Possibility of ETH short squeeze
1. Market supply and demand factors: On one hand, a large number of short positions means that there will be significant demand for ETH purchases during future short covering. If the supply of ETH in the market is limited, shorts will find it difficult to acquire enough ETH at an appropriate price for covering, forcing them to buy at higher prices, pushing up the price of ETH. For example, if the current number of ETH available for trading in the market is 1 million, and the short covering demand reaches 500,000, it could cause a supply-demand imbalance, leading to significant price fluctuations.
On the other hand, the Ethereum ecosystem continues to develop, with ongoing demand for ETH in areas such as DeFi and NFTs. For instance, some DeFi lending protocols lock up a large amount of ETH, which reduces the circulating supply of ETH in the market, further exacerbating the supply-demand conflict during short covering.
2. Market sentiment factors: Although panic sentiment currently dominates the market, the sentiment in the cryptocurrency market can change rapidly. Once positive news emerges, such as Bybit taking effective measures to recover losses, some of the stolen funds being reclaimed, or regulatory agencies strengthening protections for the cryptocurrency market, investor sentiment may quickly turn optimistic, leading to a panic short covering and triggering a short squeeze.
V. Resistance and support for ETH reaching historical highs
I. Resistance factors
1. Technical resistance level: From a technical analysis perspective, ETH will face multiple key resistance levels during its upward movement. For example, there is strong resistance in the range of $2800 - $3000, which is a dense trading area formed by multiple price fluctuations in the past, with a large number of trapped positions here. A price breakout requires strong buying power.
2. Overall market environment: Although ETH has its own independent trend, the overall environment of the cryptocurrency market has a significant impact on it. If mainstream cryptocurrencies like Bitcoin continue to weaken due to macroeconomic factors (such as expectations of a global economic recession, tightening of central bank monetary policy, etc.) or other negative events, it will be difficult for ETH to stand alone and break through historical highs.
II. Supporting factors
1. Technological upgrades: Ethereum is advancing the Pectra upgrade plan, which is expected to optimize user experience, enhance Layer 2 support capabilities, and increase the security and flexibility of validators. These technological improvements will boost the performance and scalability of the Ethereum network, attracting more developers and users, increasing demand for ETH and providing support for its price increase.
2. Participation of institutional investors: As the cryptocurrency market is gradually accepted by mainstream financial markets, more and more institutional investors are starting to pay attention to Ethereum. For instance, some hedge funds and asset management companies have included ETH in their investment portfolios. The influx of large amounts of capital from institutional investors will provide strong momentum for the price increase of ETH.
VI. Conclusion
The short situation under the market panic triggered by the Bybit incident indeed brings the possibility of a short squeeze for ETH, potentially creating a historical new high. However, ETH's price trend is influenced by various factors, and although a short squeeze may occur, it faces obstacles such as technical resistance levels and the overall market environment. At the same time, Ethereum's own technological upgrades and participation from institutional investors provide additional support for its rise. Investors need to closely monitor market dynamics, including the follow-up developments of the Bybit incident, the overall trend of the cryptocurrency market, the progress of Ethereum's technological upgrades, and changes in the macroeconomic environment, in order to make reasonable investment decisions.
