- Bitcoin’s recent recovery is not attributed to any specific news event but rather driven by dynamics in the Bitcoin futures market.
- Taking a deeper look at Skew’s analysis, they noted a clear divergence between price and the Cumulative Volume Delta (CVD) of perpetual contracts.
- It appeared that open positions in futures contracts on major exchanges had decreased. According to Coinglass, open interest dropped from $10.66 billion to $10.65 billion.
Bitcoin price recovered rapidly after yesterday’s sharp decline and eliminated short positions; Could it be the beginning of an uptrend?
Bitcoin Recovered Rapidly and Rising to $26 Thousand
Bitcoin’s price swiftly recovered after the sharp decline it experienced yesterday, almost reaching $26,000 during Asian trading hours on Tuesday. This recovery in BTC is not linked to any specific news event but is influenced by dynamics in the Bitcoin futures market.
Prominent analyst Skew referred to the price movement as a ‘textbook short squeeze’ and offered a technical perspective. A closer look at Skew’s analysis reveals a clear divergence between the Cumulative Volume Delta (CVD) of perpetual contracts and the price. Divergence between CVD and price in trading can signify a potential reversal. In this context, as sellers attempted to push the price below $25,000, CVD indicated increased buying pressure.
Furthermore, the futures market had a high number of short positions relative to open interest, and the funding rate was negative. A negative funding rate typically means that short positions are paying long positions, indicating bearish sentiment. While the price struggled to regain the $25,300 swing low price level, it failed to sustain the downtrend in lower timeframes.
Signs started to emerge in the spot market, where assets are bought and sold for immediate delivery, that prices were gradually rising. Skew pointed out that the combination of these factors led to a short squeeze, where those betting against the market (short sellers) were forced to cover their positions, further driving up the price.
Skew’s analysis essentially highlights that while many traders had a bearish bias when betting against Bitcoin, fundamental indicators were suggesting a potential bullish turnaround. The immediate target for traders after the squeeze would be to reclaim $26,000.
TheKingfisher succinctly explained the impact of the short squeeze on those betting against Bitcoin: ‘We expect to see highly leveraged short positions wiped out. BTC cleansed them once again.’
No More Downside Expected!
Axel Adler Jr. shed light on the broader market sentiment, stating, ‘Traders are not planning for further downside. Net Buyer Volume is up 9.79%. This is a new record for the balance of open Buyer orders with long positions over the past year.’
Despite the rapid price movement, the size of the short squeeze was relatively modest. According to Coinglass data, approximately $12.32 million worth of BTC short positions were liquidated. For context, the largest short liquidation event in the last three months occurred on August 17 when BTC quickly surged above $26,600 from below $24,700, and it involved a significant amount of $120 million.
It appears that open positions in futures contracts on major exchanges have slightly decreased. Coinglass reports open interest dropped from $10.66 billion to $10.65 billion. This minor drop indicates that there were few traders who needed to close their bets, funding rates turned positive, and a signal for a shift from bearish to bullish sentiment.
