Bitcoin Rally Sparks Debate: Short Squeeze or Fresh Demand?
Bitcoin's recent price surge has left analysts wondering if it's a genuine rally or just a short squeeze. Despite a macro backdrop that should be working against it, BTC has jumped from around $76,000 last week to over $86,000 this week.
US stocks have recovered, oil has pulled back below $100, and Treasury yields have eased as markets price in a better supply outlook and tentative diplomatic signals. However, Bitcoin's rebound stands out, with some attributing it to short covering.
Bernardo Brites, co-founder and CEO of Trace Finance, believes the short squeeze explains how fast Bitcoin moved, but not why. Over $1 billion of crypto positions were liquidated over a 24-hour period during the latest surge, including most from short positions, according to CoinGlass data.
But short squeezes are self-limiting and once the shorts are gone, that source of buying disappears. The more important clue is what happened alongside the squeeze, with US spot Bitcoin ETFs recording $998.95 million in net inflows on September 21, their strongest single-day haul in 11 months.
Chris Seedor of bitsurance notes that Bitcoin's supply cannot expand quickly enough to absorb a sudden increase in demand. He added that 'you cannot issue more Bitcoin because demand increased this week.'