The Bitcoin (BTC) price has been rising for a few days. Last night it suddenly went very fast. Within 4 hours, the value of bitcoin increased by more than 13%. What is the cause of this sudden acceleration? For this we have to look into the corner of the short sellers.
When an investor opens a short position, he borrows bitcoins and then immediately res sells them on. The investor pays back the borrowed bitcoins at a later date to the person from whom he borrowed them, in the expectation that the price will fall. In this way, a short position can be profitable.
But when the price starts to rise, the short seller gets into trouble. Its position is then underwater and a short squeeze can follow. Such a squeeze is caused by short sellers closing their positions if the price continues to rise. This means that it is becoming increasingly unlikely that a short position will be profitable. A short seller liquidates his position, i.e. the investor buys back the Bitcoin at market value.
In short, a short seller closes his position by buying back Bitcoin from the market. This causes buying pressure. This can trigger a chain reaction as more and more short positions are closed. And that seemed to have happened last night, according to data from this morning’s market update.
It was on-chain analyst Willy Woo who saw the short squeeze coming. Three days ago, he shared a tweet with his findings. He saw the Relative Strength Index (RSI) erupting on the daily chart, a reliable signal that a trend reversal is possible. In addition, foreign exchange reserves continued to fall, “a short squeeze setup,” according to the analyst.
Sarah has been working in the field of crypto news for several years. She writes as a freelance author for various trade magazines on blockchain, bitcoin and altcoins. She also has a professional background in finance with a focus on investment and new forms of financing.