TL;DR

• Alpaca Finance (ALPACA) saw an unexpected 2,300% price surge despite Binance announcing its delisting.
• Despite the major rally, traders should tread carefully since the RSI has entered overbought territory at a ratio of 93.

The Gigantic Surge

The cryptocurrency market is an unusual place, and it is not rare for certain tokens to experience triple or even quadruple price increases in a short period of time.

Such is the case with Alpaca Finance (ALPACA), whose valuation exploded by roughly 2,300% in the last week. As of this writing, it trades at around $1.08 (per CoinGecko’s data), the highest level since the end of 2021. 

Its explosive growth could be viewed as a surprise, considering that Binance decided to terminate all trading services with ALPACA several days ago. The actual delisting is scheduled for May 2, and initially, the news triggered a double-digit price decline for the asset. After all, such action reduces the liquidity and visibility of the affected token and damages its reputation. So, nothing out of the blue, right?

What followed, though, was rather unexpected and, according to several posts on X, could be attributed to a “short squeeze.” After the delisting announcement, many traders supposedly opened short positions, anticipating a substantial price decline for ALPACA. As mentioned, such a drop indeed transpired, but only briefly, and the subsequent rally might have caused major damage.

This, in turn, led to a short squeeze, where traders who had opened short positions, expecting the price to go south, were forced to buy back tokens to avoid further losses and liquidations, which pushed the asset further upwards.

It’s important to note that a substantial price decline often follows a short squeeze as the forced buying eventually ends, and there’s little demand left to sustain the inflated valuation. This, combined with profit-taking by traders, typically intensifies the subsequent downward.

Another factor potentially contributing to the rally is the burning program Alpaca Finance has adopted. The project has completed 214 weekly buyback and burn events, cumulatively removing almost 35 million ALPACA tokens from circulation, representing approximately 18.6% of the maximum supply. 

Fundamental principles of economics dictate that reduced supply, combined with steady or increasing demand, pushes prices higher.

Traders Should be Careful

One important element suggesting that ALPACA’s pump might be abruptly suspended in the short term is the Relative Strength Index (RSI). The momentum oscillator, which measures the speed and magnitude of recent price changes, varies from 0 to 100.

Readings above 70 indicate the cryptocurrency has entered overbought territory and could be headed for a pullback. Data shows that ALPACA’s RSI has soared to 93, signaling a bearish scenario.