Bitcoin [BTC]: A story of how short traders caused a price rally in January

• BTC has seen a large number of liquidations from short traders over the past month, hence the price rally.
• With buying pressure easing, BTC’s price could see a correction soon.

Bitcoin in January 2023 [BTC] Markets experienced their strongest monthly performance since October 2021 with a year-to-date (YTD) gain of over 43%. Glass node, in a new one reportnoted that this unexpected surge in value took BTC’s price to its highest level since August 2022, with a 6.6% weekly gain from its $22,400 bottom.

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Glassnode reported that an increase in the number of short squeezes in the derivatives market was the main reason for the recent surge in BTC price over the past month. The recent rally was fueled by short squeezes in the derivatives market, with over $495 million worth of short futures contracts liquidated in three waves.

The report noted that the cash-and-carry basis for swap perpetuals and calendar futures was now in positive territory, indicating a return of positive sentiment and speculation in the market.

Although total open interest in BTC relative to its market cap has declined since November 2022 and the leverage ratio has fallen from 40% to 25%, Glassnode opined that this represents a decrease in futures leverage and short-term speculative interests.

Source: Glassnode

Additionally, Glassnode noted that new demand for the king coin slowed as its price surged over the past month. According to the report, the total balance of BTC held on exchanges has hit a multi-year low of 11.7% of circulating supply.

The daily inflow and outflow of coins from exchanges was balanced, with a net flow of $20 million, reflecting a slowdown in new demand. The largest monthly outflow of coins in history occurred from November to December 2022, but has turned neutral again, indicating outflows are cooling off.

Source: Glassnode

BTC’s uptrend could stall

BTC’s movements on a daily chart suggested that its price could take a hit in the new trading month. As of this writing, the leading coin’s moving average convergence/divergence (MACD) indicator showed that a new bear cycle had begun. The MACD line had intersected the trendline in a downtrend, and the price of BTC dropped to its Jan. 21st level.

Furthermore, the coin’s price and Chaikin cash flow had been moving in opposite directions for the past two weeks, resulting in bearish divergence.

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This bearish divergence indicated that there could be a potential price pullback in February, as the trend of the CMF indicated a decrease in buying pressure as the price continued to move higher. This is a warning sign for investors as it may indicate that the price’s uptrend is not supported by underlying demand.

Finally, BTC’s Money Flow Index (MFI) stood at 48.46 and was in a downtrend at press time after breaking the 50 neutral point. This also showed that buying momentum in the BTC markets had slowed significantly.

Source: BTC/USDT on TradingView

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