Bitcoin: Longs vs. Short Analysis
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Bearish Sentiment as derived from Bitfinex long and short position data in the Bitcoin market has rapidly advanced in the past week two weeks, with Short positions at the exchange doubling from 17k short to 34k in the price decline from $7,500 to $5,900, showing no immediate sign of slowing. At the same time, long positions have decreased to lows of 26k, meaning that the bears are outweighing the bulls by 30%.
Bears Need New Lows Under 6K
This is a precarious situation for the bears. For the bears to win the battle, it is necessary to find new lows, with longs capitulating at the same time. This has yet to be proven to be the case in the three previous attempts to find meaningful new lows.
Part of the reason for this is that the 26k longs see to find a floor at c. 6k with the main reason being that 62% of the longs at this level are long from somewhere lower having built the position in the 2017 advance and are likely to be difficult to be shaken out.
The remaining 10k Long positions are trapped from significantly higher prices above
12K – but are yet to capitulate. Assuming that these longs are using 3x leverage, it would be unlikely to make them capitulate until somewhere below 5k, which may indeed be the target for the bears. The longs previously long from above 6k have closed, either in profit or having been shaken out.
Short Squeeze Opportunity
Meanwhile, the bears are now in pushing towards all-time high short interest. This does not mean that the short positions cannot continue to increase. But while price continues to remain resilient at the ~6k level, it will be leaving the bears in an increasingly precarious position and risk a short squeeze – a short squeeze meaning that an increase in price $6427.49 +1.35% will force liquidation over leveraged shorts.
In other words, market buy orders are placed to close positions, which coupled with new buying entrants will lead to a price increase and a snowball effect as other buyers enter the market for fear of missing out (FOMO) on a buying opportunity.
The last time a large short squeeze played out occurred when shorts were at 36k with price around 7k– representing a 2k increase in short positions from the 34k where we currently are.
The difference this time is that the bulls are tired and many have been subjected to a third bull trap which has largely fuelled by a short squeeze, without enough buying interest to return Bitcoin to a bull market.
With margin long positions declining rapidly relative to the increase in the shorts, it is time to pay attention. It may be that there is a period of sideways price action needed to tempt slightly more bears to the party to empty their ammunition before a big player pulls the trigger on a short squeeze.
We suspect that prices above $6,500 will create the desired cascading effect, but if shorts continue to mount without enough maintenance by the bulls, the bears may finally have their party.
Should this happen, we know that 5k will likely to become the new pivot point with profit taking and new buying interest entering.
Bears Need New Lows Under 6K
This is a precarious situation for the bears. For the bears to win the battle, it is necessary to find new lows, with longs capitulating at the same time. This has yet to be proven to be the case in the three previous attempts to find meaningful new lows.
Part of the reason for this is that the 26k longs see to find a floor at c. 6k with the main reason being that 62% of the longs at this level are long from somewhere lower having built the position in the 2017 advance and are likely to be difficult to be shaken out.
The remaining 10k Long positions are trapped from significantly higher prices above
12K – but are yet to capitulate. Assuming that these longs are using 3x leverage, it would be unlikely to make them capitulate until somewhere below 5k, which may indeed be the target for the bears. The longs previously long from above 6k have closed, either in profit or having been shaken out.Short Squeeze Opportunity
Meanwhile, the bears are now in pushing towards all-time high short interest. This does not mean that the short positions cannot continue to increase. But while price continues to remain resilient at the ~6k level, it will be leaving the bears in an increasingly precarious position and risk a short squeeze – a short squeeze meaning that an increase in price $6427.49 +1.35% will force liquidation over leveraged shorts.
In other words, market buy orders are placed to close positions, which coupled with new buying entrants will lead to a price increase and a snowball effect as other buyers enter the market for fear of missing out (FOMO) on a buying opportunity.
The last time a large short squeeze played out occurred when shorts were at 36k with price around 7k– representing a 2k increase in short positions from the 34k where we currently are.
The difference this time is that the bulls are tired and many have been subjected to a third bull trap which has largely fuelled by a short squeeze, without enough buying interest to return Bitcoin to a bull market.
With margin long positions declining rapidly relative to the increase in the shorts, it is time to pay attention. It may be that there is a period of sideways price action needed to tempt slightly more bears to the party to empty their ammunition before a big player pulls the trigger on a short squeeze.
We suspect that prices above $6,500 will create the desired cascading effect, but if shorts continue to mount without enough maintenance by the bulls, the bears may finally have their party.
Should this happen, we know that 5k will likely to become the new pivot point with profit taking and new buying interest entering.
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