Important points:
- An overly leveraged short Bitcoin position between $63,000 and $66,000 creates a potential $2.6 billion squeeze trap for the bears.
- A persistently negative funding ratio indicates that bulls are fully deleveraging and significantly reducing downside risk.
Bitcoin ($BTC) Friday’s crash to $61,100 wiped out $335 million in leveraged long positions. However, with negative market sentiment increasing after the 21% drop in Bitcoin prices, the bulls may have set the perfect trap. Bearish positions piled up significantly between $63,000 and $66,000, setting the stage for a potential $2.6 billion short squeeze.
Estimated cumulative Bitcoin liquidation amount (USD) on major exchanges. Source: Coinglass
If Bitcoin were to fall another 8% from $62,000 to $57,000, the estimated liquidation amount would be $1.2 billion. In contrast, a rise to $66,000 would put $2.6 billion of short positions at risk. This potential squeeze could be enough fuel to restore buyer confidence after a record-breaking market. 13th consecutive day of net outflows From Spot Bitcoin Exchange Traded Fund (ETF).
US-listed spot Bitcoin ETF daily net flows (USD). Source: SoSoValue
Thursday’s modest net inflow of $3 million could represent a temporary respite after a 15-day sell-off that saw $5.1 billion go out. It is still too early to conclude that momentum has officially turned in the bulls’ favor. At the end of the day, if the bears keep leverage low and play conservatively, the actual threat of a massive short squeeze could be minimal.
Bitcoin perpetual futures annualized funding rate. sauce: Lightness
Neutral funding rates typically range from 6% to 12%, which longs pay to maintain their positions. Bitcoin perpetual futures funding rate, currently at -2%, suggests growing confidence among the bears. Therefore, even if it takes Bitcoin a while to regain the $66,000 level, the bulls are fully deleveraging and reducing downside risk.
Nasdaq 100 futures (left) vs. Bitcoin/USD (right). Source: TradingView
Bitcoin is significantly underperforming the Nasdaq 100 index, but the tech sector is starting to show weakness after Broadcom (AVGO US) fell 12.6% on Thursday, wiping out $280 billion in market capitalization. The company lowered its AI chip sales forecast for the second half of 2026, alarming investors.
The impact of technology sector IPOs and Strategy’s 32 $BTC sale
Other big names in the AI field also felt the impact. Micron (MU US) fell 7.8% and Arm (ARM US) fell 4.5%. Highly anticipated IPOs by SpaceX, Anthropic, and OpenAI are on the horizon, and investors likely chose to raise cash ahead of those public offerings. Analysts claim that this liquidity drain also contributed to Bitcoin’s recent downturn.
Related: Strategy’s Leveraged Bitcoin Model Faces First Stress Test (Grayscale)
Jeff Park, partner at ParaFi Capital and Bitwise advisor, argues that the AI sector is draining money from other investments as the market suddenly becomes a “hotball of money” that everyone “has to own.” However, Park reminds us that once this period of AI mania passes, capital will eventually return to Bitcoin as its discounted valuation favors it.
Regardless of whether Bitcoin’s weakness is due to AI sector hype, bears’ overconfidence poses a major risk once spot Bitcoin ETF inflows accelerate or the recent concerns surrounding Bitcoin ETFs intensify. 32 $BTC Sales from strategy (MSTR US) will disappear. While a recovery to $66,000 may seem unlikely at first glance, a sudden short squeeze could quickly shift momentum in the bulls’ favor.
This article was created in accordance with Cointelegraph’s editorial policies and is for informational purposes only. It does not constitute investment advice or recommendations. All investments and trading involve risk. Readers are encouraged to do their own research.
