Bitcoin's recent price action has sparked discussions about a potential short squeeze that could propel the cryptocurrency toward the $90,000 mark. This possibility arises as funding rates turn negative, hinting at a build-up of short positions and potential for a rapid price surge if those positions are forced to close.
After sliding from $106,000 to $80,600 in just 10 days, Bitcoin's recovery is beginning to solidify, with the price pushing back toward the $87,000 to $90,000 zone. This rebound has led to speculation about whether Bitcoin has found a local bottom. On-chain data reveals a market characterized by diverging behavior among different investor groups.
Negative Funding Rates and Short Squeezes
Funding rates are periodic payments exchanged between long and short traders in perpetual futures markets. They help to keep the price of the perpetual contract close to the spot price of the underlying asset and gauge market sentiment. A positive funding rate means that long traders are paying short traders, indicating bullish sentiment, while a negative funding rate indicates bearish sentiment, with short traders paying those holding long positions.
Negative funding rates suggest that a majority of traders are betting against Bitcoin, anticipating a price decrease. However, this situation can create the conditions for a short squeeze. If Bitcoin's price starts to rise, short sellers may be forced to buy back Bitcoin to cover their positions, further driving up the price. The buying pressure from these forced closures can create a rapid and significant price increase, known as a short squeeze.
Data points
Several factors support the possibility of a short squeeze. Accumulator addresses, which represent entities with strong conviction, have increased their holdings to a record 365,000 BTC on November 23, up from 254,000 BTC on November 1, demonstrating a substantial increase in demand. Also, mid-sized holders in the 10–100 BTC and 100–1,000 BTC ranges have been accumulating throughout the correction, absorbing part of the sell-side pressure.
It is important to note that the potential for a short squeeze does not guarantee that Bitcoin will reach $90,000 or higher. The cryptocurrency market is inherently volatile and influenced by many factors, including macroeconomic conditions, regulatory developments, and investor sentiment.
Uneven Cohort Behavior
Wallets holding more than 10,000 BTC, along with the 1,000 BTC to 10,000 BTC institutional cohort, have been steady distributors throughout the decline, fueling structural weakness. Retail wallets, those holding under 10 BTC, have also been net sellers over the past 60 days, offering little support during the downturn.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Investing in cryptocurrencies involves significant risks, and you should consult with a qualified financial advisor before making any investment decisions.
