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Analysts Warn of Short Squeeze Risks in the Crypto Market
The return of Bitcoin above $75,000 is accompanied by skepticism, as margin traders doubt the continuation of the rally, reports Bloomberg.
Funding rates on perpetual futures have remained negative for around 46 consecutive days. This marks one of the longest periods of bearish sentiment in derivatives history, comparable only to the aftermath of the FTX collapse in late 2022.
Bitcoin perpetual futures funding rate dynamics. Source: Glassnode.
According to analysts, a notable divergence has formed between rising spot prices and bearish positioning in futures markets. Such discrepancies often lead to large-scale liquidations.
If prices continue to rise, short sellers will begin to incur losses and be forced to close positions en masse. This process, known as a short squeeze, can trigger a sharp price spike. The longer the pressure builds, the stronger the potential move.
“Traders are aggressively building short positions, betting against a breakout. This creates conditions where a short squeeze becomes more likely if upward momentum persists,” said K33 Head of Research Vetle Lunde.
Supporting Factors
Despite trader skepticism, Bitcoin has gained about 11% from its April lows.
4-hour BTC/USDT chart on Binance. Source: TradingView.
Several fundamental factors are supporting the market:
- Capital inflows. U.S. spot Bitcoin ETFs are increasingly recording positive inflows.
- Institutional activity. Strategy, led by Michael Saylor, purchased $2.6 billion worth of Bitcoin over the past two weeks, significantly strengthening the market, according to FalconX trader Bohan Jiang.
- Wall Street initiatives. Charles Schwab announced plans to launch spot crypto trading with allocations up to 8.8%, while Morgan Stanley became the first major bank with its own Bitcoin ETF.
Weekly ETF inflow and outflow dynamics. Source: SoSoValue.
Experts warn that the abundance of positive news makes short positions vulnerable. Any of these triggers could spark volatility and force bearish capitulation.
“A breakout above $76,000 could push Bitcoin toward $85,000. Such a rally could catch many off guard,” said Kaiko analyst Laurent Fraysse.
Resistance and Risks
Bears still have opportunities if the uptrend stalls. According to Deribit, options traders are paying high premiums for downside protection, with open interest concentrated in put contracts at $60,000 and $50,000.
If the rally continues, Bitcoin may face strong resistance. Bohan Jiang noted that options dealers using market-neutral strategies tend to sell into price increases, with significant positions clustered around $80,000.
At the time of writing, Bitcoin is trading near $75,500 — about 40% below its all-time high of around $126,000 reached in October.
Previously, analysts at CryptoQuant also warned about the risk of widespread profit-taking in the crypto market.
See also: "CryptoQuant: Bitcoin composite index approaches historical support zone"
