Bitcoin (BTC), which broke through $42,000 on January 11, as investors hoped for a new “short squeeze”, increased.
BTC/USD 1-hour candle charts (Bitstamp). Source: TradingView
Short-term squeeze “reasonably probable”
Data from TradingView and Cointelegraph Markets Pro followed BTC/USD’s recovery from Monday’s dip at $39,600 — the first breach of $40,000 since September.
Although short-term bullish prognoses weren’t present, the focus was on the potential for derivatives markets and another “short squeeze.”
Open interest is near its all-time high despite the downturn, and sentiment favoring further downside. A surprise uptick could have an impact on short positions and provide some relief for bulls.
Glassnode, an on-chain analytics company, noted that such an event was long overdue in its latest edition of “The Week On-Chain”. Since November’s $69,000 highs, longs have been suffering almost continuously. “Squeezes” also occur when the market is least expecting a particular outcome.
Researchers predict that short traders who are not punished for taking on more risk may be candidates for a near term squeeze.
Glassnode said that this event could be amplified by “tepid demand for spot BTC, futures open interest leverage, and which is close to 2% of Bitcoin market capitalization.
The newsletter concluded that “alongside very oversold indicators of on-chain spending activity,” a short squeeze could be a reasonable near-term solution for the market.
Annotated chart of the Bitcoin futures open-interest leverage ratio Source: Glassnode
There’s a long for every short
Analysts looked at alternatives to the removal of high open interest via another leg towards $30,000.
Related: “Most bullish macro background in 75 years” — 5 things you should be watching in Bitcoin this week
Credible Crypto, a popular Twitter account, suggested that despite no open interest “wipeout”, a surprising upside move could still be the one that changes market composition.
He was asked to clarify his thoughts after receiving data from William Clemente.
“Happened in August 21st as we moved from the 30K bottom. We may see the same thing again. The bears will be clean.”
Bitcoin futures open-interest chart (Binance). Source: Coinglass
Cointelegraph reported that $40,000 is forming a significant price area from several points in the past twelve months.