Bitcoin Short Squeeze: Shorts Surge, Risk Liquidation As Demand Remains

After pushing to a new high above $76,000, Bitcoin has found itself struggling to keep up the momentum. As a result, bearish expectations have been on the rise and nowhere was this more evident than in the derivatives segment.

The ratio of Bitcoin longs versus shorts experienced a shift in the last 3 days. It went from predominantly being in favor of more longs, to shorts being dominant. This confirmed that derivatives investors were increasingly growing bearish, thus executing more short positions.

Despite the bearish expectations, Bitcoin bears have so far not managed to get the upper hand. BTC managed to stay within its recent highs, revealing a bit of a stalemate between the bulls and the bears. In other words, it did not manage to generate enough sell pressure for a sizable pullback.

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Is a Bitcoin Short Squeeze Scenario About to Play Out?

A short squeeze scenario could be playing out according to a recent CryptoQuant analysis. This was based on the observation that open interest was at historic highs while funding rates turned negative as a result of the shifting sentiment in the derivatives segment.

Negative funding rates are usually associated with bearish outcomes. The report also noted that a surge in short positions was observed across top exchanges. It also noted that a short squeeze may have already happened and could be responsible for the recent all-time high.

The cryptoQuant analysis claimed that the short squeeze occurred once Trump was announced as the winner in the presidential race. This forced short sellers to buy in order to cover their positions.

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Will Price Go Up Higher?

Bitcoin’s price action was characterized by directional uncertainty after seemingly stalling near its recent highs. This means it could go either direction. However, on-chain data may help determine where it is likely to flow.

Bitcoin ETFs are among the biggest determinants of BTC price action in 2024. Therefore, their activity may help determine whether the bulls will keep rallying.

Institutions are usually active during the week, but not on the weekends. This may explain why Bitcoin seemingly slowed down towards the weekend.

ETFs will resume activity on Monday and this means we will likely see a volatility resurgence. Continued inflows into ETFs will likely push prices higher. In the meantime, Exchange flow data still sided with the bulls.

Exchange flows tanked in the last 2 days but exchange outflows were still slightly higher than inflows. While the higher exchange outflows appear to be shielding BTC from downside, market sentiment still has room for a shift moving into the new week.

More liquidations will take place if prices continue ticking higher. On the other hand, a resurgence of sell pressure may trigger a wave of sell pressure and yield profits for short sellers.