Bitcoin Short Trading Positions Reach Peak, Implying Bull or Bear Run?
Despite Low Market, Bitcoin Short Positions Reach Their Highest, But Does This Mean The $7,200 Price Will End?
Bitcoin’s price reached over $7,200 just a day ago, but there’s already speculation that this price surge is temporary, rather than being a sign of a short-term rally. The short positions with Bitcoin have been getting near the highest that they have ever been, which is a sign that many traders are losing faith that the price will even stick around.
There was a 10,000 BTC short position created on September 1st, which is what brought the positions to their heighted level. Still, Bitcoin has kept the stable price at the low range of $7,000.
The Bitcoin shorts first reach their greatest high on April 9th, which is around the same time that they reached low $7,000s in price. At that time, there were about 38,000 open positions, which had been climbing since February, only a few months prior. From April 9th to May 5th, the price almost reached $10,000.
The similarity between the two situations is how investors are supporting the idea that the two actions are related, connecting the high number of open short positions with the Bitcoin price climb. However, this comparison is not clean and connected enough to be verifiable.
However, this situation occurred again when there were 17,000 short positions on August 2nd, which grew to almost 40,000 open positions 19 days later. This seems to correlate between the fall from over $8,000 to the low of around $6,000 from July to August 13th. This drop even brought down the value of many altcoins.
When the short positions reached almost 40,000, they then dropped to 22,000 as the price rose back up over $7,000 in the same period. As a result of the repeated circumstances of short positions rising as the price falls, it makes sense that traders see the short positions as “rocket fuel” for market rallies. This is most commonly called a “short squeeze.” According to Investopedia,
“A short squeeze is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock. It…is generally triggered by a positive development that suggests the stock may be embarking on a turnaround. Although the turnaround in the stock’s fortunes may only prove to be temporary, few short sellers can afford to risk runaway losses on their short positions and may prefer to close them out even if it means taking a substantial loss.”
With all those factors considered, traders and investors both are curious about what the result will be for the price, considering the 10,000 BTC short position now. According to Placeholder VC partner Chris Burniske, there are a few results that could be deemed most likely. He said,
“The interesting thing with outstanding short positions as an indicator is it can simultaneously be interpreted in opposite ways. From a momentum perspective, lots of short positions can be interpreted as a good time to pile on, as shorts collectively work to break an asset’s back. From a contrarian perspective, lots of short positions can be seen as ‘rocket fuel’ to the upside if the shorts are wrong and get squeezed…”
Right now, it comes down to if bulls or bears have the pressure needed to make the push in the market. Burniske’s leaves the community with the following advice:
“I’ll let you choose your interpretation re: $BTC right now, but important to hold both opposing ‘short thoughts’ in your mind at the same time.”