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Investors viciously betting on further price downturns for Bitcoin (BTC) could be caught with their pants down in the coming days as the derivatives market suggests an impending short squeeze.
Bitcoin Ripe For Short Squeeze
In the Bitcoin futures market, there are signs of a pending short squeeze.
Crypto analytics firm K33 Research spotted a combination of negative perpetual swap funding rates in the past few weeks and a rise in open interest.
“This suggests aggressive shorting, structurally creating a setup ripe for a short squeeze,” K33 analysts Vetle Lunde and David Zimmerman said in an Aug. 20 research report to investors.
A short squeeze occurs when prices unexpectedly rise, forcing short sellers to exit positions. These Bitcoin sellers scramble to cover positions, which could lead to higher prices in the following days/weeks.
K33 strategists found that the 7-day average funding rate has dropped since the crypto market mayhem on August 5, reaching -2.53% on Tuesday — its lowest level since March 2023. A negative funding rate often indicates short positions — bets that the BTC price will fall — have overtaken long positions.
Moreover, notional open interest in the past week has risen to its highest weekly recording in more than a year, at around 28,880 Bitcoin.
“The current combination of surging open interest and negative 7-day average funding rates is unique and promising,” the analysts concluded.
Mt Gox Moves Over $780 Million In BTC
Meanwhile, defunct exchange Mt. Gox moved 12,000 worth of Bitcoin to an unknown wallet address.
According to data tracked by Arkham Intelligence, Mt. Gox transferred BTC valued at a whopping $709.44 million to a wallet identified as “1PuQB” around 11:39 p.m. UTC on Aug. 20. The collapsed exchange then shifted 1,264.69 BTC (worth $74.77 million) to the address “1Jbez,” which Arkham identified as a cold wallet belonging to Mt. Gox. The funds have not been moved to other addresses since.
The major transfer could mean Mt. Gox is readying to distribute more Bitcoin to its creditors, who have been waiting to get their crypto back after the exchange infamously went bankrupt in 2014 following a major hack.
Suffice it to say that the Mt. Gox creditor repayments have been a considerable source of bearish pressure on the price of the alpha crypto in recent months. However, the latest on-chain transactions may not lead to significant selling pressure, according to Alex Thorn, Galaxy Digital’s head of research.
Thorn thinks only a small portion of the funds moved — $74.5 million — is intended to be distributed, with the remainder going into “fresh cold storage” still owned by the Mt. Gox rehabilitation estate.
Notably, the Bitcoin price remained relatively stable above $59,000 despite the latest transfers.
According to CryptoQuant data, roughly 68% of Mt. Gox’s funds have so far been reimbursed to creditors. As of press time, Mt. Gox still holds a massive Bitcoin hoard—46,164 BTC valued at approximately $2.7 billion.