Bitcoin Short Sellers Get Squeezed

Short squeezes unfold across the market. Equities are rallying higher and bitcoin is going with it. Open interest has yet to fall.

Bitcoin Squeezed Past $23,000

Short squeezes unfold across crypto markets. In yesterday’s piece, we highlighted how the bitcoin (and more broadly, crypto) derivatives market was stoked with a massive buildup in open interest, and given the market’s overall trend of serving as beta to equity markets, if equity markets continued their risk-on rally, crypto markets were set to break out with a large amount of volatility. 

At the time of writing bitcoin has broken out of the range it has been trading in for over a month’s time, trading approximately at $23,400. 

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Interestingly, bitcoin has appeared to be the laggard in a broader rally led by ether, which rose as much as 44% from the local bottom relative to bitcoin itself, as shown by the ETH/BTC trading pair.

It is worth noting that given Ethereum’s relative size to Bitcoin (approximately 42% of its market cap), it is more volatile and easier to move with an equal amount of capital. Also, ETH has notably higher historical volatility relative to BTC, meaning that when broader capital markets are green, its beta can often result in relative outperformance.

Given that perpetual futures open interest hit an all-time high relative to its market cap, as markets began to move upwards, a cascade of short covering took place, reflexively pushing the market higher and higher. Ether’s relative outperformance makes sense given that it has already squeezed a significant amount of open interest from the market.

While ether open interest has fallen dramatically following a monster short squeeze, bitcoin has lagged behind in regards to its price action, but most interestingly, its open interest is still near all-time highs in market capitalization terms as it consolidates around $23,400. Both ETH and BTC saw all-time high perpetual futures open interest relative to market cap during the latest consolidation phase.