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Bitcoin Shorts May Soon Get “Trapped” as Bulls Slow BTC’s Descent

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  • Bitcoin’s price has found some stability following the recent market-wide selloff that helped send it down from highs of $11,200 to lows of $10,400
  • Bulls are ardently guarding against it seeing further near-term downside at the present moment
  • There is a possibility that sellers will be able to continue pushing the market lower in the near-term, as turbulence within the stock market is providing an ideal background for bears to operate against
  • One analyst is noting, however, that the cryptocurrency’s muted response to the immense selling pressure seen heading into BTC’s daily close is a positive sign
  • He even notes that this could indicate that a push higher is imminent, and that bears will soon see their short positions get “trapped”

Bitcoin and the entire cryptocurrency market are caught within a bout of sideways trading at the present moment. It is important to note that altcoins are firmly following in the lead of BTC, and where they trend next may depend entirely on the benchmark cryptocurrency.

For Bitcoin’s mid-term outlook to remain firmly bullish, it is imperative that bulls either reverse its recent downtrend now or defend its $10,200 support and spark a reversal there.

One trader does believe that bulls may soon regain control over Bitcoin’s short-term outlook.

Bitcoin Enters Bout of Choppy Trading Following Sharp Selloff 

Last week, bulls attempted to reverse Bitcoin’s downtrend when they sent the cryptocurrency surging up to highs of $11,200.

BTC did face a rejection at this price level, which caused it to subsequently trade sideways for an extended period.

This consolidation ended up resulting in a sharp downwards movement. It ultimately plunged to lows of $10,400 before it was able to find any strong support.

BTCUSD Chart via TradingView.

Now, Bitcoin is trading just a hair above these lows at its current price of $10,500.

Analyst: BTC Likely to See a Relief Rally as Late Shorts Risk Getting Trapped 

While speaking about where he thinks Bitcoin may trend in the near-term, one prominent analyst explained that he is looking towards a relief rally that traps late shorts.

“BTC likely sees relief in the near future. Nice selling into the close of yesterday’s session. If you ask me, that looks like an optimal way to set up a trap for any systematic shorts that would get the green light at that point,” he explained.

If this does take place, bulls must surmount the lower-$11,000 region. Another rejection here would be grim for Bitcoin’s mid-term outlook.

Featured image from Unsplash.
Pricing data from TradingView.





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Bitcoin

Bad call? Bitfinex bears closed a block of Bitcoin shorts before the drop below $32K

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Bitcoin price is still in a rut, trading near $33,000 and trapped in a downtrend that just seems to get worse with the passing of each day. As the price slumps, analysts have consulted with several technical and on-chain metrics to explain the price collapse, but none of these have picked up on the exact reason. 

One area of interest has been the sharp rise in short positions at Bitfinex in the past week. Traders are placing exaggerated importance on these Bitcoin (BTC) margin shorts as if they are predictors of the current market crash. Still, as Cointelegraph previously reported, analysts forget that Bitcoin margin longs are usually much larger.

On June 18, longs outnumbered Bitfinex shorts by at least 22,800 BTC, but 87% of the short positions were closed before June 22. Currently, margin longs are 43,850 BTC higher than the amount shorted.

While those shorts are usually savvy traders, it is unlikely that they knew in advance that Chinese banks would prevent their clients from engaging in activities involving crypto trading or mining.

More importantly, these bearish positions were built while MicroStrategy was buying $500 million in Bitcoin after a successful senior secured note private offer. To make things worse, Michael Saylor’s business intelligence firm announced the intention to raise another $1 billion by selling stocks to buy Bitcoin.

Let’s take a look at how these courageous shorts fared.

Bitfinex margin shorts (blue) vs. Bitcoin price in USD (orange). Source: TradingView

On June 6, shorts increased from 1,380 to 6,700 at an average price of $36,150. Three days later, another 12,180 shorts were added when Bitcoin was trading at $37,050. Lastly, between June 14 and 15, shorts increased 6,000 to a 25,000 peak while Bitcoin averaged $40,100.

By looking at the Bitcoin prices when those short position increases took place, it is reasonable to assume that the 23,500 contract increase (green circles) had an average price of $37,625.

Related: Traders search for bearish signals after Bitcoin futures enter backwardation

Traders closed positions before BTC crashed bel$32,000

These short positions were steadily closed over the past three days when Bitcoin was already trading below $37,000. However, 17,000 short contracts had already been closed by the time the price plunged below $33,500. Therefore, it is implausible that the average price was below $34,500.

No one would complain about gaining 8%, shorting the market to generate a $73 million profit. However, it is essential to note that on June 16, when Bitcoin reached $40,400, these shorts were underwater by $65 million.

This analysis shows how even highly professional traders can go deep underwater. There’s no way to know if this trade would have been profitable had the crackdown on China not aggravated Bitcoin price or if MicroStrategy managed to raise the $1 billion before the price drop.

If anyone still believes in market manipulation, at least there’s comfort in knowing that pro traders can face drastic losses as well. However, unlike us mortals, whales have deep pockets and patience to withhold even the most rigorous thunderstorms.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.