Bitcoin (BTC) broke through $ 42,000 on Jan. 11 as expectations of a new short squeeze rose.
BTC / USD 1-hour candle chart (Bitstamp). Source: TradingView
Short-term bottleneck “quite likely”
Data from Cointelegraph Markets Pro and TradingView followed BTC / USD as it rebounded from slump to USD 39,600 on Monday – it is first violation the $ 40,000 mark since September.
While short-term bullish forecasts were noticeably absent that day, attention focused on the potential of the derivatives markets to trigger another short squeeze.
With open interest close to all-time highs despite the downturn and sentiment clearly favoring further downward movement, a surprising uptrend could result in shorts being “squeezed” and providing some relief for the bulls.
As an on-chain analysis company, Glassnode noticed In the latest edition of the weekly newsletter “The Week On-Chain” such an event is overdue. Longing has suffered almost all the time since the all-time high of $ 69,000 in November, and there are more squeezes when the market least anticipates a particular outcome.
“Short traders who have not been penalized for taking increasing risk could turn out to be candidates for a short-term shortage,” researchers predict.
Such an event could be compounded thanks to “tepid” demand for spot BTC and futures open interest leverage approaching 2% of Bitcoin market cap, Glassnode added.
“Along with very oversold indicators of spending activity in the chain, this suggests that a short squeeze is indeed a fairly likely short-term fix for the market,” the newsletter concluded.
Annotated Chart for Bitcoin Futures Open Interest Leverage Ratio. Source: Glassnode
For every short there is a long one
Analysts, meanwhile, are considering alternatives to high open interest, which will be removed over another leg towards $ 30,000.
Related: “The Most Bullish Macro Background In 75 Years” – 5 Things To Watch For Bitcoin This Week
While there is still no “extinction” of open interest, a surprising upward move could nonetheless be the event that resets the composition of the market, argued popular Twitter account Credible Crypto on the day.
“What if the great OI extinction everyone is looking for ends up being due to upward pressure rather than downward movement?” He said questioned in response to data from fellow analyst William Clemente.
“That happened in August ’21 when we left the 30K low. Guess we’ll probably see this again. Bears are about to be wiped clean. “
Open Interest Chart for Bitcoin Futures (Binance). Source: Coinglass
As reported by Cointelegraph, $ 40,000 has turned out to be significant price zone from several points in the past 12 months.
