Analysts sound alarm as Bitcoin traders shun shorting—Are they onto something big?

Bitcoin traders are exhibiting a cautious stance by refraining from significant short positions, driven by the anticipation of continued price appreciation in the crypto market. Analysts observe this trend as traders opt to avoid betting against Bitcoin’s upward trajectory, expecting its value to surge further. 

This cautious approach reflects a strategic shift in trading behavior, highlighting the prevailing sentiment of optimism and bullishness among market participants regarding Bitcoin’s future price movements.

Bitcoin traders ditch short trades

BTC’s price fell to a local low of $38,500 in January 2024 before rising above $50,000 for the first time in 27 months in February. Typically, a sudden increase in price like this would result in a substantial short squeeze.

At the time of writing, Bitcoin (BTC) is worth $51,603.77, down 0.5% from an hour ago and 0.7% from yesterday. The value of BTC today is 3.9% greater than it was seven days ago.

BTC has already hit the same level that supported it in November 2021, before a digital asset collapse that led to the 2022 bear market. Furthermore, BTC has grown by 130 percent in the last year and by more than 207 percent since its lows in November 2022.

Bitcoin is currently trading barely 28.6 percent below its all-time high (ATH). As the market approaches the 2021 highs, the supply of BTC priced above the current year-to-date high is decreasing, signaling a tightening of available supply at these higher prices.

However, the amount of the short squeeze observed so far this year is minimal when compared to the previous year. This pattern proposes two hypotheses. 1) Large investors, or ‘whales’, have abstained from taking fresh short positions, citing a likely price comeback, which is also reflected in supply inactivity for this cohort.

Second, these investors chose to devote their resources to spot holdings instead. This strategy move reflects a shift in investor opinion and behavior, favoring direct investment in BTC over speculative short-selling.

Is Bitcoin headed to the ultimate bull market?

The Bitfinex Alpha report identified current market dynamics as a combination of tightening supply and rising demand.

The report demonstrated how current bitcoin-holder dynamics could predict early bull-market situations. According to Glassnode data, the total volume of bitcoin long-term holder supply in loss approaches zero as the digital asset’s price rises.

Currently, less than 6% of the aggregate long-term holder supply by individual entities are held at a loss. Historically, similar instances where the long-term holder cohort held a comparable volume of bitcoin in loss have been indicative of early bull market conditions. Bitfinex Alpha report

In other news, Bitcoin soared to a new 2024 high of $53,019 on February 20 before quickly falling to $50,000 on several platforms. Traders are noting sustained spot BTC ETF inflows and the approaching supply halving event as primary factors driving the price rise, and BTC is currently trading above $51K.

Bitcoin futures open interest (OI) has reached a new yearly high, matching levels last seen in 2021. This suggests increasing trading activity around the leading crypto by market cap.

According to data from crypto futures trading and information platform Coinglass, the total OI for BTC futures reached $22.69 billion on Feb. 20, the highest since Nov. 11, 2021, and is approaching the previous top of $23 billion.

Open interest is a measure of the total value of all outstanding or “unsettled” Bitcoin futures contracts across exchanges, with rising values indicating higher market activity and trading enthusiasm toward the pioneer crypto.

Investors’ sustained bullish mood appears to be fueled by increased inflows into spot BTC ETFs while outflows from gold ETFs accelerate. Bitcoin has eclipsed the $49,000 peak established following the US Securities and Exchange Commission’s approval of spot Bitcoin ETFs on January 10.