Is bitcoin about to experience a “short squeeze?” According to many analysts, the answer is yes.
A Short Squeeze Is in BTC’s Future, Analysts Say
A short squeeze is when an asset that has been doing poorly suddenly skyrockets in price due to several traders making bets against it. As of late, the world’s number one digital currency by market cap has been trading in the doldrums, losing close to $30,000 off its price since reaching its latest all-time high of approximately $64,000 in mid-April of this year. The asset has been in a rather poor state ever since, and everyone seems to have lost their faith in it.
However, according to many industry experts, this is exactly what needs to happen if bitcoin is to ever experience any kind of surge. Flex Yang – chief executive of Hong Kong-based crypto lender Babel Finance – explained in a recent interview:
Given bitcoin’s past market performance, when traders use excessive leverage to short the market during a horizontal price adjustment, there will often be a short squeeze phenomenon.
He has pointed out that a lot of money is now going into bitcoin from short sellers looking to make quick profits off the digital asset. He suggests this has been a relative constant ever since bitcoin began falling into oblivion as despite the currency’s massive dip, trading volumes on popular crypto exchanges such as Binance have increased by approximately 110 percent over the past two months.
Yang further says:
Many people are anticipating a bear market. Bitcoin holders are building hedges. Those who bought at high prices are locked in.
This Has Happened Before
He also claims that a short squeeze could be somewhat expected at this stage given it has occurred a few times in the past with bitcoin. He suggested this while pointing to evidence of bitcoin’s behavior between the months of February and April in 2018 and then again between June and July of 2020. During these periods, bitcoin experienced heavy spikes after dropping to new lows. He says:
In November 2020, there was a temporary sharp increase in the number of short-selling positions at a high price. Afterwards, the price of bitcoin continued to rise, continuing its bull market position. No matter if the market outlook is trending downwards after rebounding or if bitcoin maintains its bull market status, short traders have always suffered the consequence of being squeezed out and liquidated.
Bitcoin’s bull run came to a screeching halt not too long ago after it was announced that Tesla was rescinding its decision to accept bitcoin payments for all goods and services. The price experienced further drops when CEO Elon Musk hinted on Twitter that he was looking to sell his personal BTC stash. In addition, China also took a stance against bitcoin mining, saying that it would limit further activity.