Analysts Warn of Short Squeeze Risks in Cryptocurrency Market

Bitcoin's return above $75,000 is met with skepticism from margin traders.

Bitcoin’s return to levels above $75,000 is met with skepticism: margin traders doubt the continuation of the price rise, writes Bloomberg.

Funding rates for perpetual futures have remained negative for about 46 consecutive days. This is one of the longest periods of bearish sentiment in the history of derivatives, comparable only to the aftermath of the FTX exchange collapse at the end of 2022.

According to agency analysts, there is a noticeable gap between the positive dynamics of spot prices and the pessimistic positioning in futures. Such discrepancies often lead to large-scale liquidations.

If quotes continue to rise, holders of short positions will start incurring losses and will be forced to close them en masse. This process, known as a short squeeze, can trigger a sharp price surge. The longer the pressure persists, the stronger the price impulse may be.

“Traders are actively increasing short positions, betting against the breakout. This creates conditions where a short squeeze becomes more likely if the upward momentum continues,” noted K33’s head of research, Vetle Lunde.

Factors Supporting the Asset

Despite traders’ skepticism, the leading cryptocurrency has gained about 11% from April’s local lows.

Several fundamental factors are supporting the market:

• Capital inflow. American spot bitcoin ETFs are increasingly showing positive fund inflows;
• Institutional actions. Michael Saylor’s Strategy company has acquired bitcoins worth $2.6 billion in just the past two weeks. According to FalconX senior derivatives trader Bohan Jiang, these transactions have significantly strengthened the market;
• Wall Street initiatives. Brokerage corporation Charles Schwab announced the launch of spot crypto trading, allowing up to 8.8% portfolio allocation in digital gold. Morgan Stanley became the first major bank with its own exchange-traded fund based on the first cryptocurrency.

Experts warned: the abundance of positive news makes short positions vulnerable. Any of the listed triggers could provoke a spike in volatility and a bear capitulation.

“A breakthrough above $76,000 could drive BTC to $85,000. Such a rally could catch many off guard,” believes Kaiko analyst Lorenz Fraussen.

Resistance and Risks

Bears still have a chance for profit if the upward trend halts. According to Deribit exchange data, options market participants are willing to pay high premiums for downside protection: open interest is concentrated around put contracts with strikes at $60,000 and $50,000.

If growth continues, the leading cryptocurrency may face strong resistance. According to Bohan Jiang’s observations, options dealers using market-neutral strategies sell the asset on price increases, with their largest positions concentrated around $80,000.

At the time of writing, bitcoin trades around $75,500—40% below the all-time high of approximately $126,000 set in October.

Earlier, CryptoQuant analysts warned of the risk of mass profit-taking in the cryptocurrency market.