Bitcoin Could Test $90,000 After Short Squeeze, but Traders Warn Leverage Is Building

Bitcoin climbed to a fresh eight-month high of $86,000 on Monday, extending a rally that forced bearish traders out of their short positions and drew fresh leveraged bets back into the market. A test of $90,000 could be next, though traders warn that leverage is building.

Roughly $750 million in bearish crypto derivative positions were liquidated as bitcoin cleared $82,000, a level that had capped prices since August, CoinGlass data shows. When short positions are liquidated, exchanges execute buy orders to close them, adding fuel to an already upward-moving market.

“Bitcoin up 5% this morning due to short perpetual futures contracts being liquidated,” Jim Ferraioli, head of crypto research at Schwab, told CoinDesk.

Futures open interest — the total value of outstanding derivatives bets — rose even faster than bitcoin's price. Since the breakout, about $2 billion in new leveraged exposure has been added, according to Coyze data, suggesting traders are pacing fresh bets even as shorts got wiped out. That buildup is precisely what traders are warning about: leveraged positions can be forcibly closed if price moves against them, the same mechanics that powered Monday's squeeze.

While the rally has been fueled by a mix of renewed ETF demand and short covering, crypto-native positioning has been slower to shift from bearish to bullish, according to Nicolai Sondergaard, senior research analyst at crypto analytics firm Nansen.

“The important distinction is that price has turned bullish faster than positioning has,” he said.

U.S. spot bitcoin ETFs saw a combined $746 million of outflows on Tuesday and Wednesday as the Clarity Act cloture vote failed in the Senate (cloture is the procedural step needed to move a bill toward a final vote) and the Fed hiked rates, according to data by Farside Investors. Flows then reversed just as fast, taking in $160 million on Thursday and $433 million on Friday — the strongest inflow day of the week. Monday's flow data will come later and will also be something traders watch in the wake of the rally, as a read on whether the ETF demand that helped fuel the rebound is holding.

Monday's rally also triggered a milestone for holders of bitcoin exchange-traded funds (ETFs). With the average cost basis for U.S. BTC ETF buyers at $82,225, ETF investors are making profits for the first time in a while.

Bitcoin may test $90,000

The move through $82,000 is drawing attention because that level had already stopped bitcoin once. An attempt to break through in May failed, and the price slid below $60,000 in June. It is also why the fresh $2 billion in leveraged exposure and the renewed ETF inflows are the data points traders are watching should price move toward the $90,000 area.