Following the recent crypto market rally, some analysts have suggested that Bitcoin’s rise may not be sustainable and that the move is mainly due to the liquidation of short positions.
Bitcoin, which has risen about 12% since the beginning of March, has performed impressively amid heightened geopolitical risks. Analysts said the price increase could be due to a reduction in short positions rather than strong buyer demand, despite heightened uncertainty in global markets due to conflicts between the United States and Israel and Iran.
Nathan Batchelor, managing partner at cryptocurrency trading data platform Beyond, noted that significant short-term liquidations are occurring, especially in the $73,000 to $74,000 range. According to Batchelor, this could be one of the main reasons why Bitcoin rose so quickly towards these levels in such a short period of time. The analyst said the volatility pattern is currently low and indicates short-term price movements known as “stop hunting” rather than a strong uptrend. Therefore, Batchelor suggested that the current move may not be the beginning of a sustained breakout towards $80,000, but rather a pullback due to the liquidation of short positions.
A short selling strategy is known as a method in which investors sell borrowed assets in the hope that prices will fall, and then aim to buy them back at a lower price. However, as prices rise, investors holding short positions may be forced to buy at higher prices to close out their positions. This situation could create more buying pressure on the market and push prices higher.
Sebastian Serrano, CEO of Argentina-based crypto exchange Lipio, said rising energy costs are fueling inflation and causing central banks to delay rate cuts. According to Serrano, this limits the liquidity that risk assets like Bitcoin need to grow.
Nevertheless, some analysts say Bitcoin’s rise since the start of the war was an unexpected development. Lawrence Frausen, a research analyst at crypto data firm Kaiko, said the situation is inconsistent with the market’s normal reaction. According to Frausen, early in the war, when Bitcoin was trading between $60,000 and $63,000, many investors took short positions in the hope that the price would fall. However, the market’s strong upward reaction may have created a short squeeze.
Frausen pointed out that similar moves have taken place in the past, citing a similar situation when Russia invaded Ukraine in 2022. Despite negative geopolitical news at the time, Bitcoin experienced a temporary rally, but after short positions were removed from the market, the price returned to a downward trend. According to the analyst, current market conditions contain all the necessary ingredients for a similar scenario to play out.
*This is not investment advice.
