The crypto markets are rocketing as a result of the short squeeze

A jump in cryptocurrency markets that has lasted into August is being ascribed in part to a short squeeze driven by errant bets placed by bears in response to last month's rapid rally.

Between July 21 and July 30, as bitcoin surged 30%, over $US2.4 billion ($3.2 billion) in short positions across crypto markets were liquidated on global derivatives exchanges, according to statistics collated by Australian cryptocurrency exchange Swyftx.

Over the last three weeks, the prices of the two main cryptocurrencies have risen dramatically.

“There is considerable conjecture among analysts that the recent bitcoin price increase was fueled by a short squeeze of leveraged traders who added to the upward momentum with position liquidations,” said Pav Hundal, Swyftx's head of high value accounts.

Until mid-July, the bitcoin price had more than halved since reaching a top of $US60,000 in April. Its rapid decline prompted an increasing number of short bets.

However, as crypto values surged in late July, investors hurried to cover their short positions. This resulted in a 50% increase in nett withdrawals across global exchange holdings throughout the time.

“This indicates that market sentiment has evolved, and investors are reinvesting in bitcoin assets,” Mr Hundal added.

Cryptocurrency market capitalisation has risen to about $US2 trillion, up 50% since the rally began on July 21.

Bitcoin's price has increased 35% in the last month to $US45,737, while ethereum's price has increased 48% to $US3151.

A significant factor in ethereum's better growth has been the activation of its "London hard fork" upgrade last week.

Its implementation features a fee-burn mechanism that sends tokens to specialised addresses with unreachable private keys, thereby removing them from circulation.

According to crypto platform Luno, 67,331 ethereum tokens have been issued via mining since the upgrade, while 19,820 have been burned, marking a 30% decrease in total nett issuance.

According to a Luno research, as the ethereum network burns more of its tokens, investors expect ether to accelerate gains as the reduced quantity increases the perceived value of ether already in existence.

Rush of large sums of money

Throughout July, an influx of high-net-worth individuals and institutional investors into cryptocurrencies was also witnessed, bolstering the market's surge.

Exchange of digital currencies BTC Markets informed The Australian Financial Review that its trading volumes were among the lowest in a year last month. However, volumes in accounts worth more over $1 million were double what they were last year during the same period.

“While retail investor trading volumes decreased in July, we observed a tripling of high nett worth accounts,” said Caroline Bowler, CEO of BTC Markets.

“In prior rallies, momentum was mostly driven by ordinary investors, which resulted in a more rapid decline in prices, but there is now a core group of institutional investors remaining in this market.”

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