Bitcoin's Rally Shifts from Short Squeeze to Long Risk

Bitcoin's recent rally to $87,400 has entered a new phase, shifting from a short squeeze to long risk. This change in market dynamics is evident as fresh demand weakens and existing holders take profits.

CryptoQuant estimates that apparent spot demand contracted by about 170,000 BTC over the past 30 days, suggesting cash-market buying failed to keep pace with the rally. US exchange-traded fund flows also point in the same direction, declining by 97% over the past week.

Speculative demand has cooled even faster, growing at a rate of about 16,000 BTC from 164,000 BTC on Sept. 14. The slowdown is becoming more consequential as existing holders sit on increasingly large gains.

The short-term traders' unrealized profit margin has climbed to 33%, its highest since December 2024, expanding the pool of gains available to be realized if investors choose to reduce exposure. Some have already done so, with Bitcoin holders realizing profits on 25,700 BTC on Sept. 22, the largest single-day total of 2026.

The combination of weakening demand and increasing profit-taking poses a challenge for Bitcoin's continued rally. The market structure has become increasingly dependent on derivatives, with roughly 90% of combined trading activity in futures. Despite falling leverage, this imbalance has barely improved due to subdued cash-market participation.