Following a turbulent week, Bitcoin's price is stabilizing, recovering from significant support around the $115,000 mark. The leading cryptocurrency appears to be on a recovery trajectory, potentially reaching new highs as market momentum builds. Analysts, including Luca on X, suggest that the recent downturn may have been a temporary setback, indicating the possibility of an impending short squeeze.
Luca highlighted the role of Bitcoin market makers in the recent price fluctuations, suggesting that the initial drop was likely an attempt to liquidate late long positions as traders capitalized on the excitement surrounding new all-time highs. Subsequently, a price reversal caught many short sellers off guard, triggering a surge above $118,000 and resulting in substantial liquidations.
This price action coincided with a decline in the Bitcoin funding rate. According to Coinglass data, the Bitcoin OI-Weighted Funding Rate briefly dipped below 0.01% on Sunday after peaking at 0.0167% earlier in the week. Additionally, Luca noted that the Bitcoin Premium metric had also slipped into negative territory. Interestingly, open interest surged when Bitcoin's price fell, and as the price began to recover, open interest rose once more, suggesting that short positions were being squeezed.
If this squeeze persists, Bitcoin's price could experience a rapid increase, potentially liquidating tens of thousands of short positions. As the cryptocurrency fluctuates between $115,000 and $120,000, open interest has climbed significantly, reaching all-time highs as traders continue to place bets on Bitcoin's next movement. Since hitting $87.89 billion on July 15, open interest has consistently averaged above $80 billion daily.
Furthermore, the Binance Long/Short ratio indicates that short positions currently dominate at 53.97%, compared to 46.03% for long positions, supporting Luca's prediction of a potential short squeeze that could push prices to new record highs.
