Bitcoin's Sudden Rally May be a Trap, Analyst Warns of Downward Trend

A recent surge in Bitcoin's price has some analysts warning of a potential trap. The cryptocurrency shot up from the low $60,000s to just under $80,000 over the past week, but Nonzee, an analyst, believes this increase is not due to genuine demand, but rather forced buying and short squeeze.

The size of the squeeze wiped out more than $3.1 billion in short positions, with Bitcoin responsible for around $1.65 billion of that figure. Nonzee argues that this was not a change in sentiment, but rather a liquidity squeeze triggered by two catalysts: Trump's CLARITY Act and the Treasury Department's increased long-term bond buybacks.

According to Nonzee, the next leg is down, with a predicted path from $77,000 to $67,000, then $55,000, before a final leg to between $48,000 and $45,000. Bitcoin's current price is around $78,000, up 2% on the day and 22% over the past week.

While some traders are cautiously adding positions, others are drawing comparisons to the conditions right before last October's crash. The Fear and Greed Index has also reached its highest reading since then, a jump that could signal a selloff in the near future.