Short positions worth about $150 million were liquidated within hours of bitcoin’s (BTC) price drop on the 26th. April went from about $47,000 to over $53,000.
The crypto-currency market as a whole has seen a sharp tightening of short positions, with Ether (ETH), Binance Coin (BNB) and other major cryptocurrencies also rising by around 15% over the same period.
After bitcoin rose 12% in one day, the futures market completely reset and funding rates hovered at neutral levels.
Why bitcoin’s short squeeze is bullish
Short squeeze trading is when a short sell order in the futures market is closed in a short period of time.
When short sales are closed, short sellers are forced to buy back their positions, which ironically leads to an increase in buyer demand in the market.
As a result, the number of short contracts decreases rapidly and long contracts or buy orders begin to dominate the market.
With a significant increase in the number of lengths, the funding rate in bitcoins increases significantly. This is because the refinancing rate increases when longer orders are placed in the market.
If the coverage ratio exceeds 0%, buyers must pay sellers a portion of their position every eight hours and vice versa.
In the case of bitcoin, the funding price has remained relatively low for the past 24 hours, despite a sharp rise in BTC.
According to Bybt.com, the funding rate of the major bitcoin exchanges is less than 0.01%, which is below the neutral rate.
funding rate for bitcoin futures. Source: Bybt.com.
This means that there are still more short positions than long positions in the bitcoin futures market, which could serve as a catalyst for further upward movement.
This is an upward trend for bitcoin, as it comes after a massive liquidation of short contracts. Lex Moskovsky, CEO of Moscow Capital:
~$150 million in #Bitcoin shorts liquidated in this short rise. Nothing smells better than baked bears in the morning.Bitcoin Short Liquidation. Source: Glassnode
Traders think bitcoin could go higher in the short term.
In the short term, traders say the $55,500 price level is important to have a chance at new all-time highs.
BTC/USDT 4-hour price chart (Binance). Source: Tradingview, Johnny.
Johnny, a cryptocurrency derivatives trader, said:
Swiped, and now we have a very strong rebound. We’re not out of the woods yet. Return the $55,500 and we can talk about the new ATH. In the meantime, play at level. Strong reaction so far.
Adnan van Dahl, a former institutional trader, pointed out that if bitcoin doesn’t fall before the U.S. market opens, the chances of a bigger rally increase.
Dal wrote:
If $BTC can open on the US (EUR bin Man shrugged), think a little about Gumption. Long term orders in the open commodity market, recent data was good, SPX close to ATH after helpful profit taking on Friday and a solid start. I think this will help – the SPX / $BTC contest is a weak thing this year. TSLA as a replacement then later.
As long as bitcoin remains above $51,000 in the U.S. market and tries to surpass $55,000, the likelihood of a record high in the near future remains high.
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