Following the recent surge in the cryptocurrency market, some analysts suggest that the Bitcoin rally may not be sustainable and that the movement is largely due to the liquidation of short positions.
Bitcoin, which has risen by approximately 12% since the beginning of March, has displayed a remarkable performance during a period of increased geopolitical risk. Despite the US-Israel conflict with Iran increasing uncertainty in global markets, the price increase may be due to a squeeze on short positions rather than strong buyer demand, according to analysts.
Nathan Batchelor, managing partner at the crypto trading data platform Biyond, noted that there has been significant short liquidation, particularly in the $73,000–$74,000 range. According to Batchelor, this could be one of the main reasons for Bitcoin’s rapid move towards these levels in a short period. The analyst stated that volatility patterns are currently low, indicating short-term price movements known as “stop-hunting” rather than a strong uptrend. Therefore, Batchelor suggested that the current movement might be a bounce resulting from the forced closing of short positions, rather than the beginning of a sustained breakout towards $80,000.
A short selling strategy is known as a method where investors sell an asset they have borrowed with the expectation that its price will fall, and then aim to buy it back at a lower price. However, when the price rises, investors who open short positions may be forced to buy at a higher price to close their positions. This situation can create additional buying pressure in the market, causing the price to rise even further.
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Sebastián Serrano, CEO of the Argentina-based cryptocurrency exchange Ripio, states that rising energy costs are fueling inflation, causing central banks to delay interest rate cuts. According to Serrano, this limits the liquidity that risky assets like Bitcoin need to thrive.
Despite this, Bitcoin’s rise since the start of the war has been an unexpected development according to some analysts. Laurens Fraussen, a research analyst at the crypto data company Kaiko, stated that this situation does not align with the market’s normal reaction. According to Fraussen, in the early days of the war, when Bitcoin was trading between $60,000 and $63,000, many investors opened short positions expecting the price to fall. However, the strong upward reaction of the market may have created a short-term short squeeze.
Fraussen noted that similar movements have occurred in the past, citing a similar situation in 2022 when Russia invaded Ukraine. At that time, despite negative geopolitical news, Bitcoin experienced a brief surge, but the price returned to a downward trend after short positions were cleared from the market. According to the analyst, current market conditions contain all the elements necessary for a similar scenario to unfold.
*This is not investment advice.
Continue Reading: Will the Recent Surge in Bitcoin Continue? Analysts Weigh In
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