Key takeaways:
Over-leveraged Bitcoin short positions between $63,000 and $66,000 have created a potential $2.6 billion squeeze trap for bears.Negative perpetual funding rates indicate that bulls have fully deleveraged, significantly reducing downside risk.
The Bitcoin (BTC) crash to $61,100 on Friday wiped out $335 million in leveraged long positions. However, after a 21% decline in Bitcoin’s price, bulls might have set a perfect trap as negative market sentiment intensified. Bearish positions built up heavily between $63,000 and $66,000, setting the stage for a potential $2.6 billion short squeeze.
Estimated cumulative Bitcoin liquidation at major exchanges, USD. Source: CoinGlass
Estimated liquidations for a further 8% drop in Bitcoin to $57,000 from $62,000 stand at $1.2 billion. In contrast, a rally to $66,000 would put $2.6 billion of short positions at risk. This potential squeeze might provide enough fuel to revive buyer confidence following a record-breaking 13-day streak of net outflows from spot Bitcoin exchange-traded funds (ETFs).
US-listed spot Bitcoin ETFs daily net flows, USD. Source: SoSoValue
The minor $3 million net inflow on Thursday could represent a temporary breathing room after 15 days of selling that drained $5.1 billion. It remains too early to conclude that momentum has officially flipped in favor of the bulls. Ultimately, if bears kept their leverage low and played conservatively, the actual threat of a massive short squeeze might be minimal.
Bitcoin perpetual futures annualized funding rate. Source: Laevitas
A neutral funding rate typically ranges between 6% and 12%, with longs paying to keep their positions open. The current negative 2% Bitcoin perpetual futures funding rate suggests growing confidence among bears. Thus, even if it takes time for Bitcoin to reclaim the $66,000 level, bulls have fully deleveraged, reducing downside risk.
Nasdaq 100 futures (left) vs. Bitcoin/USD (right). Source: TradingView
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