When sentiment diverges from reality, the market usually hits speculative positions first.
Notably, that’s exactly how the market is positioned right now. According to Coinglass, the market liquidated nearly $140 million in short positions on 13 March, marking the second-largest short squeeze since the West Asian crisis kicked off two weeks ago.
From a technical perspective, the crypto market has clearly diverged from the broader macro FUD. Around $150 billion has flowed into digital assets so far this week, even with roughly one-third of the week still left to go. However, as the gap between sentiment and reality continues to widen, the key question now is – Will the crypto market keep pushing in this direction?
Crypto markets lean bullish despite rising geopolitical risks
Market sentiment around the conflict is starting to diverge from what’s actually unfolding on the ground.
According to a recent report from Santiment, optimism that the conflict between Iran, Israel, and the United States could soon come to an end peaked on Tuesday. In fact, as the weekend approached, social dominance tied to the word “war” started to pick up again, often appearing alongside terms like “ending.” This suggested that crypto traders might be leaning heavily towards a de-escalation narrative.
Notably, this optimism is now showing up on-chain as well.
Bitcoin’s [BTC] funding rate flipped positive to around 0.002, marking the strongest positive funding rate since the conflict kicked off two weeks ago. Moreover, this came after nearly a full week of negative funding, which had reflected bearish positioning across derivatives markets.
From a technical standpoint, the shift back into positive funding means traders might be gradually rotating back into long positions, aligning with the growing optimism around a potential end to the conflict in the Middle East. In other words, the crypto market could be pricing the situation as more of a “short-term” conflict, than a prolonged one.
However, recent developments did show a clear divergence.
According to The Kobeissi Letter, just two hours after the U.S stock market closed, President Trump threatened to strike Kharg Island in Iran, raising fresh concerns around global oil supply risk.
So far though, the crypto market has largely shrugged this off. Alas, with sentiment starting to diverge from recent developments, the key question now is – Could a long squeeze test the market’s resilience?
Reality check looms as risk assets face growing FUD
The divergence between positioning and the geopolitical backdrop is already hitting the U.S stock market.
From a technical standpoint, U.S equities have wiped out more than $2 trillion since the war kicked off. The S&P 500, for instance, closed the week down 0.61%, extending losses from the previous week’s 2.02% correction and marking the fourth consecutive lower low.
Consequently, with President Trump’s latest threat targeting Kharg Island, Monday could bring even more downside. The question now is – Will this spill over into crypto? So far, crypto has moved in the opposite direction, seeing roughly $150 billion in inflows. That said, the timing matters. Especially as market makers continue to debate whether Bitcoin has found its bottom or not.
On one hand, Jurrien Timmer, Director of Global Macro Fidelity, sees a bottom near $60K. On the other hand, skeptics believe it’s too early to call a bottom in a bear phase. According to AMBCrypto, the divergence in positioning shows that crypto’s foundations remain volatile, keeping traders cautious despite the recent inflows.
Against this backdrop, the recent jump in Bitcoin’s funding rates hinted that positioning may be running ahead of reality on both the geopolitical and technical fronts, leaving the crypto market exposed to a sudden swing. Especially as other risk assets like U.S. equities remain vulnerable heading into Monday’s session.
If this pattern holds, a long squeeze could hit sentiment hard. Especially with the macro reality finally spilling over into crypto.
Final Summary
- $140 million in shorts liquidated, $15 billion flowed into crypto assets, and Bitcoin funding rates turned positive.
- U.S equities remain vulnerable after a $2 trillion wipeout, and fresh threats to Kharg Island raise the risk of a long squeeze hitting the crypto market.