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Breaking News: Is Sony The Next Crypto Bank? Tech Giant Applies For A National Charter In The US

Bitcoin Derivatives Signal Major Risk Of Explosive ‘Short Squeeze’ Rally Ahead

Ronaldo Marquez
Ronaldo Marquez
1 year ago
3 mins read
Bitcoin

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As the world’s largest cryptocurrency, Bitcoin (BTC), continues to consolidate between the $58,000 and $60,000 price range with no clear direction, a bullish signal from the derivatives market suggests the potential for sudden and sharp rallies ahead for BTC’s price.

Data Shows Aggressive Bitcoin Shorting

According to crypto research firm K33 Research, the funding rate for Bitcoin perpetual futures has reached its lowest since March 2023, when the US bank failures rattled investors. This indicates a prevalence of downside bets, or short positions, on the cryptocurrency. K33 analysts Vetle Lunde and David Zimmerman wrote in a note: 

Perpetual swap funding rates have averaged at negative levels over the past week, while open interest has sharply increased. This suggests aggressive shorting, structurally creating a setup ripe for a short squeeze.

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A short squeeze occurs when a sudden and unexpected price increase forces traders with short positions to close their bets, further fueling the rally. This can stoke further price recoveries for Bitcoin as traders rush to cover their bearish positions.

In the perpetual market, K33 Research further noted that the notional open interest, or the total value of outstanding contracts, rose by almost 29,000 BTC over the past week. 

According to the analysts, the seven-day average annualized funding rate on August 20th was a negative 2.5%, a relatively rare backdrop.

This combination suggests that traders have been actively building short positions, setting the stage for a potential short squeeze that could push the price above key resistance walls that have not been breached this week as the market struggles with a notable lack of bullish catalysts.

Short-Term Bearish Pressure For BTC? 

According to an Inspo Crypto analysis, the options data suggests that the $60,500 level remains a significant challenge for the bulls, with the potential for heightened volatility around this price point. One key indicator is the Implied Volatility (IV) curve, which shows a spike around the $60,500 level. 

This suggests that traders expect significant price action around this zone, as evidenced by the elevated delta and gamma values, which measure the sensitivity of option prices to changes in the underlying asset’s price.

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Further, the market sentiment appears to be a mix of bullish and bearish positions. While the heavy use of bullish strategies like Bull Call Spreads and Reverse Put Calendars suggests a more positive outlook among traders, the increasing skew toward negative values indicates that traders are seeking more downside protection through put options.

According to the analyst, this heightened activity suggests that the probability of a failed retest at this level is elevated, and the options market could exacerbate any subsequent price action.

It is key for the BTC price to close the week above this crucial level for the potential to continue the recovery over the past two weeks after falling to the $49,000 mark earlier this month. 

Conversely, lower support levels would be tested with the risk of positioning the largest cryptocurrency on the market in a sharp correction, as seen in the past months after reaching its all-time high of $73,700 in March. 

Bitcoin
The 1D chart shows BTC’s price consolidation. Source: BTCUSDT on TradingView.com

At the time of writing, BTC is trading at $59,870, up nearly 2% in the last 24 hours.

Featured image from DALL-E, chart from TradingView.com

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Ronaldo Marquez
Ronaldo Marquez

Ronaldo Marquez

Ronaldo is an experienced crypto enthusiast dedicated to the nascent and ever-evolving industry. With over five years of extensive research and unwavering dedication, he has cultivated a profound interest in the world of cryptocurrencies.

Read more

Ronaldo's journey began with a spark of curiosity, which soon transformed into a deep passion for understanding the intricacies of this groundbreaking technology.

Driven by an insatiable thirst for knowledge, Ronaldo has delved into the depths of the crypto space, exploring its various facets, from blockchain fundamentals to market trends and investment strategies. His tireless exploration and commitment to staying up-to-date with the latest developments have granted him a unique perspective on the industry.

One of Ronaldo's defining areas of expertise lies in technical analysis. He firmly believes that studying charts and deciphering price movements provides valuable insights into the market. Ronaldo recognizes that patterns exist within the chaos of crypto charts, and by utilizing technical analysis tools and indicators, he can unlock hidden opportunities and make informed investment decisions. His dedication to mastering this analytical approach has allowed him to navigate the volatile crypto market with confidence and precision.

Ronaldo's commitment to his craft goes beyond personal gain. He is passionate about sharing his knowledge and insights with others, empowering them to make well-informed decisions in the crypto space. Ronaldo's writing is a testament to his dedication, providing readers with meaningful analysis and up-to-date news. He strives to offer a comprehensive understanding of the crypto industry, helping readers navigate its complexities and seize opportunities.

Outside of the crypto realm, Ronaldo enjoys indulging in other passions. As an avid sports fan, he finds joy in watching exhilarating sporting events, witnessing the triumphs and challenges of athletes pushing their limits. Furthermore, His passion for languages extends beyond mere communication; he aspires to master German, French, Italian, and Portuguese, in addition to his native Spanish. Recognizing the value of linguistic proficiency, Ronaldo aims to enhance his work prospects, personal relationships, and overall growth.

However, Ronaldo's aspirations extend far beyond language acquisition. He believes that the future of the crypto industry holds immense potential as a groundbreaking force in history. With unwavering conviction, he envisions a world where cryptocurrencies unlock financial freedom for all and become catalysts for societal development and growth. Ronaldo is determined to prepare himself for this transformative era, ensuring he is well-equipped to navigate the crypto landscape.

Ronaldo also recognizes the importance of maintaining a healthy body and mind, regularly hitting the gym to stay physically fit. He immerses himself in books and podcasts that inspire him to become the best version of himself, constantly seeking new ways to expand his horizons and knowledge.

With a genuine desire to become the best version of himself, Ronaldo is committed to continuous improvement. He sets personal goals, embraces challenges, and seeks opportunities for growth and self-reflection. Ultimately, combining his passion for cryptocurrencies, dedication to learning, and commitment to personal development, Ronaldo aims to go hand-in-hand with the exciting new era that the emerging crypto technology is bringing to the world and societies.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
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