Welcome to the Investoor!
As seasoned investors, we’re always on the hunt for opportunities that promise rapid growth and sustainable returns. Okay, we all need those 50x or 100x investments, yet we can not risk too much. We can talk about the risk and reward aspects later (yes, I promise).
The market manipulators follow the art of balancing value maximalism and market stability. Let me chew that for you.
There is a phased liquidity strategy behind every pump.
Let's talk with examples. Today (13 September 2024), a coin: REEF is enjoying excellent liquidity.
It is up 22% for the day.
The marketcap at the time of writing is close to $48M.
Let's check its Open Interest.
Open interest is the number of active contracts in the market at any given time. It increases when new positions are opened and decreases when positions are closed or settled.
In this case, Open Interest is $58M, which is more than the marketcap itself.
It indicates significantly high leverage, unsustainable, and leading to market corrections. How?
It raises the risk of liquidation.
When the market moves against most positions, many contracts may be liquidated simultaneously. Remember that the combined size of most positions is less than the whale liquidity.
This phenomenon can create a cascading effect, further increasing volatility and potentially leading to a market crash or boom.
You will understand it better when you check the historic Open Interest of REEF.
REEF is a perfect example of phased liquidity and manipulation. It is a repetition of 2022 September-November. REEF is likely to pump a little more before further slipping 90%. Manipulators have made money on the uptrend and will make even more on the downtrend.
