Bitcoin Short Squeeze Lifts Prices Back to $26K

Bitcoin BTC$87,018.43 jumped to nearly $26,000 during the asian trading hours on Tuesday, reversing Monday's decline to three-month lows under $25,000.

The move could be best described as a short squeeze – a rally powered by an unwinding of bearish derivative bets.

As prices jumped, cumulative open interest in futures and perpetual swaps trading on Binance, Bybit, OKX and Deribit fell from $5.05 billion to $4.8 billion. Open interest refers to the dollar value locked in the number of active or open positions.

The decline in open interest seemed to stem from shorts abandoning their bearish bets, as funding rates flipped positive around the same time.

Funding rates refer to costs associated with holding bullish or bearish bets in perpetual swaps (futures with no expiry). Negative rates imply leverage is skewed on the bearish side, while positive rates suggest otherwise.

"[It's] a textbook short squeeze," pseudonymous trader and analyst @52kskew said on X.

Bitcoin and alternative cryptocurrencies (altcoins) fell Monday as fears of potential selling pressure from bankrupt crypto exchange FTX roiled market sentiment.

Though impressive, the price recovery from crucial support at $25,000 may remain capped due to a lack of immediate bullish catalysts. The bitcoin spot ETF optimism has faded, with observers shifting focus to the impending liquidation of FTX's altcoin holdings.

Per some observers, the bias remains bearish while prices are held below the 50-day simple moving average.

"Bitcoin price is $25,836 below the 50-day moving average of $27,731 - which is bearish - and the week over price price decreased by 0.5%. Ethereum ETH$3,008.59 price is $1,617 below the 50-day moving average $1,752 - which is bearish - and the week over price decreased by 1.1%. Overall, the trend is down, which indicates a bearish sentiment," crypto services provider Matrixport's Markus Thielen said.