• Investors were betting against Bitcoin as the price teetered above $16,000.
• CryptoSlate analysis found that those shorting Bitcoin were not in as strong a position as investors first thought, due to the purchase of roughly $200 million in Bitcoin on spot trading markets.
• This purchase forced massive short liquidations due to dwindling volume and a short squeeze that took Bitcoin from $16,800 to over $21,000.
As the new year welcomed investors, Bitcoin was teetering above $16,000 and those betting against it rose to some of the highest on record. Bears were seemingly in complete control of the price action, however, CryptoSlate analysis found that those shorting Bitcoin were not in as strong a position as investors first thought.
The purchase of roughly $200 million in Bitcoin on spot trading markets was enough to force massive short liquidations due to dwindling volume. This purchase of Bitcoin was accompanied by several large trades executed on major exchanges which was enough to create a brief short squeeze that took Bitcoin from $16,800 to over $21,000.
The below chart shows the futures long liquidations dominance (i.e., long liquidations / (long liquidations + short liquidations)). The 50% mark in the middle of the chart represents an equal amount of long and short liquidations. Values above 50% indicate more longs liquidated, and values below 50% indicate more shorts being liquidated.
As the dominance rose to the highest level in over two years, those betting against Bitcoin lost out as long liquidations became dominant. This shows that the purchase of Bitcoin on spot trading markets and the large trades executed on major exchanges was enough to overwhelm those betting against it, and cause a short squeeze that pushed the price of Bitcoin up significantly.
Overall, this shows that the purchase of Bitcoin on spot trading markets can have a significant impact on the crypto markets, and it is important to take these factors into account when trading. In addition, it is important to keep an eye on the long liquidations dominance as this can provide an indication of which direction the market is heading.