Short squeeze risk scares speculators

Analysts expect a crypto market crash

BTC/USD

Key zone: 73,500 - 76,500

Buy: 76,500 (on a decisive break of 75,000) ; target 78,500-80,000; StopLoss 75,500

Sell: 71,500 (on strong negative fundamentals) ; target 67,500; StopLoss 72,500

Bitcoin’s return above the $75000 level is accompanied by growing global skepticism: margin traders doubt the continuation of the price rally. And this is not just informational manipulation: a combination of on-chain data, derivatives statistics, and macro factors is forming a classic setup for a short squeeze.

Recall:

A short squeeze is not just a price increase. It is a chain market reaction:

  • participants open leveraged short positions;
  • the price starts rising against these shorts;
  • liquidation levels are triggered;
  • exchanges forcibly close positions — buy volumes increase;
  • buying pushes the price higher — toward the next liquidation levels.

In cryptocurrencies, this process is amplified by:

  • a high share of margin trading;
  • aggressive leverage (up to 50–1000x);
  • fragmented liquidity;
  • dominance of retail participants.

The result: accelerating growth not directly tied to fundamentals.

In the current cycle, the crypto market is characterized by ETF capital inflows, participation of a new level of market makers, and deeper liquidity. This means large players will accumulate positions for selling.

At the moment:

  • Funding rates for perpetual futures have remained in negative territory for about 46 consecutive days. This is one of the longest bearish sentiment periods in derivatives history, comparable only to the aftermath of the FTX exchange collapse at the end of 2022.
  • A noticeable gap has formed between the positive dynamics of spot prices and pessimistic positioning in futures. Such divergences often lead to large-scale liquidations.
  • If prices continue to rise, holders of short positions will start incurring losses and will be forced to close them en masse — the market enters a classic short squeeze. The longer the pressure persists, the stronger the price impulse may be.

Despite traders’ skepticism, the leading cryptocurrency has gained about 11% from April’s local lows. Several fundamental factors are supporting the market:

  • Capital inflows: U.S. spot Bitcoin ETFs are increasingly showing positive net inflows;
  • Large player activity: Michael Saylor’s Strategy company purchased $2.6 billion worth of Bitcoin over the past two weeks — these deals significantly strengthened the market;
  • Wall Street initiatives: brokerage firm Charles Schwab announced the launch of spot crypto trading, allowing allocation of up to 8.8% of portfolios into digital gold. Morgan Stanley became the first major bank with its own exchange-traded fund based on the leading cryptocurrency.

And what is the result?

An excess of positive news makes short positions vulnerable. Any of the listed triggers can provoke a surge in volatility and bear capitulation.

A breakout above $76000 could push BTC toward $85000 — such a rally could wipe out many traders.

Bears still retain chances for profit if the uptrend stalls. Currently, options market participants are willing to pay high premiums for downside protection: open interest is concentrated around put contracts with strikes at $60000 and $50000.

With further growth, the leading cryptocurrency may face strong resistance. Options dealers using market-neutral strategies sell the asset on price increases, and their largest positions are concentrated around $80000.

At the moment, Bitcoin is trading around $75 500 — about 40% below its all-time high near $126000.

Under short squeeze risk, entering the market based on speculative information is unacceptable: the phrase “the market is overloaded with shorts” is not a signal to open positions. Confirmation of momentum and price reaction to levels are required.

It is necessary to monitor liquidity, not news, and ideally understand where (at least approximately!) the volumes are located that will be forced to close during a short squeeze.

The market is ready for a short squeeze, but it is still testing where liquidity is weaker — above or below the current price.

So we act wisely and avoid unnecessary risks.

Profits to y’all!