Bitcoin (BTC) broke the $42,000 mark on January 11 as expectations for a new “short squeeze” intensified.
Hourly BTC/USD light chart (bit tick). Source: TradingView
A short hug is “potentially enough”
Cointelegraph Markets Pro and TradingView data followed BTC/USD data as it recovered to $39,600 after Monday’s dip – the first breach of the $40,000 mark since September.
While short-term bullish expectations have been conspicuously absent throughout the day, attention has focused on the possibility that derivatives markets could lead to another short squeeze.
With open interest near all-time highs, despite the pullback and further declines feeling clearly supported, an unexpected rally could have the effect of “squeezing” shorts and providing some relief for the bulls.
As circuit analysis firm Glassnode noted in the latest issue of its weekly newsletter, The Week On-Chain, such an event has been postponed. Long long positions have struggled almost steadily since the November high of $69,000, and the ‘squeeze’ occurs most when the market at least anticipates a certain outcome.
The researchers speculate that “short traders who were not penalized for increased risk may be candidates for short-term hugs.”
Such an event could be exacerbated by “sluggish” demand for spot BTC and the impact of the open interest rate on futures contracts, which is close to 2% of bitcoin’s market cap, Glassnode continued.
“Together with indications of excessive consumer activity in online selling, this indicates that short squeeze is actually a fairly potential short-term solution for the market,” the newsletter concludes.
Detailed chart of the leverage ratio for the Bitcoin futures interest rate. Source: Glassnode
For every sale there is a long time
Meanwhile, analysts are looking at alternatives to the high open interest, which was removed in another round, as high as $30,000.
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The popular Twitter account Credible Crypto said on the same day that despite the fact that open interest has not been “eliminated” yet, the event that resets market structure remains an unexpected bullish potential.
“What if the big OI rash everyone is looking for ends up pressing up, not down?” asked in response to data from analyst William Clemente.
“It happened on August 21, when we climbed from the bottom of 30 kilometers. Do we think the probes will see this in play again? The bears should be wiped off the face of the earth.”