The number of short orders placed on ether (ETH) reached a new all-time high during Friday's trading session, according to data from the cryptocurrency exchange Bitfinex.

At approximately 10:00 UTC Friday, the number of shorts placed on ETH/USD, the world's second largest cryptocurrency by market capitalization, surpassed the prior mark of 202,854 to ultimately reach a new high of 208,689.

The new figure represents an 81.96 percent increase week-to-week and a 162 percent jump from mid-August.

The development follows an unfavorable week for the broader cryptocurrency market and ETH in particular. From September 5-6, bitcoin (BTC) fell more than $1100, accounting for a nearly 15 percent drop. In that time, over $40 billion was shed from the market capitalization of all cryptocurrencies.

Cryptocurrencies tend to follow bitcoin's lead after a big move, and ETH was no exception. Three days ago, ETH was valued at $287 across exchanges but today is trading at $221, according to CoinDesk's Ether Price Index (EPI).

In all, the developments mark a more than 80 percent drop from ETH's all-time high north of $1200, so it's perhaps no surprise that investor confidence in ETH is at an all-time low.

When a short trade of this nature becomes overcrowded – as the new all-time high would suggest is the case – an astute investor has to consider the possibility of a "short squeeze."

When short positions are stacked so high, a small increase in price could cause those shorting to close positions in order to avoid a losing trade. Since the only way to close a short is to buy back the cryptocurrency, it's possible ETH could see a rapid price increase, also known as a "squeeze."

ETH/USD Shorts/Longs VS. Price

As seen in the above chart, an abundance of shorts failed to spark any type of short squeeze in June and July. At that time though, the longs were at a very low level, comparatively.

Looking at the data from a different angle, one could make the argument that short and long market conditions are more similar to that of last November and December, given the difference between the two is at very similar levels (depicted by the white line).

What's more, the relative strength index (RSI) is both diverging bullishly and printing low levels only seen in a few instances in years past. This suggests that the selling may be reaching an exhaustion point and that an upside rally remains a possibility.

While the idea of a short squeeze is comforting for bulls, it's never a guarantee – and the lack of technical support levels below ETH/USD has certainly provided merit for the overcrowded trade.

Disclosure: The author holds BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.

Image via Shutterstock; Charts via TradingView