Bitcoin (BTC) lost over 15% of its value from its highs on January 11th to its lows on January 12th. This sudden price shift triggered a surge in bearish sentiment and encouraged traders to bet against the leading cryptocurrency. In this context, Bitcoin could be on the verge of a short squeeze that will send its price skyrocketing.
Not only Bitcoin suffered from this, but other cryptocurrencies also experienced sell-offs and more short positions against them. For example, Ethereum (ETH) lost almost 10% from its high price on January 11 to its low price the next day.
Interestingly, traders create pools of liquidity to the upside by opening a short position, which can become a target for market makers. When the cryptocurrency reaches these liquidity pools, positions are closed or liquidated, causing the price to skyrocket further. This is called a short squeeze.
Finbold turned to CoinGlass's liquidation heatmaps on January 16 to understand the risks of a short squeeze event.
Bitcoin (BTC) Could Reach $50,000 With a Short Squeeze
Notably, Bitcoin has a liquidity pool worth $575.95 million at $49,281 on the weekly time frame. Previously, CoinGlass's chart shows huge amounts of waiting short position liquidations at the current price of around $42,800.
By destroying this available liquidity, Bitcoin could rise by 15%, an easy target for bullish whales. Additionally, there is almost no downside liquidity, favoring a price increase at any time this week or next.
Heatmap of BTC liquidation. Source: CoinGlass
Short Squeeze Alert for Ethereum (ETH)
Meanwhile, Ethereum has a slightly more balanced scenario with some distributed liquidity to the downside. However, the most relevant weight points to $2,700, with $40 million in concentrated liquidations waiting for a short squeeze at this price.
Breaking the nearest positions at $2,560-$2,570 would be crucial to initiate a liquidation event. Reaching the highest target would mean a profit of over 8% for Ethereum investors buying at current prices, which are just over $2,500.
Heatmap of ETH liquidation. Source: CoinGlass
However, it is important to understand that concentrated liquidity is not a guarantee that these liquidations will occur. In order for prices to rise, demand is required, which is necessary to trigger a short squeeze. To sum up, the cryptocurrency market is unpredictable and everything can change in a matter of hours or even minutes.
Disclaimer: The content of this website should not be considered investment advice. Investing is speculative. When you invest, your capital is at risk.
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