As the world’s largest cryptocurrency, bitcoin (btc), continues to consolidate between the $58,000 and $60,000 price range without a clear direction, a bullish signal from the derivatives market suggests the possibility of sudden and steep rises in the btc price.
Data shows aggressive short selling of bitcoin
bitcoin–btc-derivatives-bets-spur-warning-of-short-squeeze” target=”_blank” rel=”nofollow”>According According to cryptocurrency research firm K33 Research, the funding rate for bitcoin perpetual futures has hit its lowest level since March 2023, when US bank failures shook investors. This indicates a prevalence of short bets, or short positions, on the cryptocurrency. K33 analysts Vetle Lunde and David Zimmerman wrote in a note:
Perpetual swap funding rates have averaged negative levels over the past week, while open interest has risen sharply. This suggests aggressive short selling, structurally creating a setup conducive to a short squeeze.
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A short squeeze occurs when a sudden and unexpected increase in price forces traders to… short positions to close their bets, further fueling the rally. This may fuel further price recoveries for bitcoin as traders rush to cover their bearish positions.
In the perpetual market, K33 Research further noted that notional open interest, or the total value of outstanding contracts, increased by nearly 29,000 btc over the past week.
According to analysts, the seven-day average annualized funding rate on August 20 was -2.5%, a relatively rare level.
This combination suggests that traders have been actively building short positions, setting the stage for a potential short squeeze that could push the price above key resistance walls that have not been breached this week as the market struggles with a notable lack of bullish catalysts.
Short-term bearish pressure for btc?
According A cryptography of inspiration x.com/InspoCrypto/status/1826245366284513764″ target=”_blank” rel=”nofollow”>analysisOptions data suggests that the $60,500 level remains a major challenge for the bulls, with the potential for further volatility around this price point. A key indicator is the implied volatility (IV) curve, which shows a spike around the $60,500 level.
This suggests that traders expect significant price action around this zone, as evidenced by elevated delta and gamma values, which measure the sensitivity of option prices to changes in the price of the underlying asset.
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Furthermore, market sentiment appears to be a mix of bullish and bearish positions. While the intensive use of bullish strategies While Bull Call Spreads and Reverse Put Calendars suggest a more positive outlook among traders, the increasing trend towards negative values indicates that traders are seeking more downside protection through put options.
According to the analyst, this increased activity suggests that the probability of a failed retest at this level is high and the options market could exacerbate any subsequent price action.
It is key for btc price to close the week above this crucial level to have the potential to continue the recovery of the past two weeks after falling to the $49,000 mark earlier this month.
On the contrary, lower support levels would be tested with the risk of placing the largest cryptocurrency on the market in a situation of strong decline. correction, as seen in recent months after hitting its all-time high of $73,700 in March.
At the time of writing, btc is trading at $59,870, up nearly 2% in the past 24 hours.
Featured image of DALL-E, chart from TradingView.com
