$600 Million Bitcoin Short Liquidation Stirs the Market

$600 Million Bitcoin Short Liquidation Stirs the Market – Implications for Price Ahead

Bitcoin remains steady in the $88,000 range, showing little movement over the past 24 hours. The leading cryptocurrency, often referred to as "digital gold," has experienced a week of high volatility, with prices fluctuating between $85,000 and $90,000. During this turbulent period, the Bitcoin futures market witnessed two significant short liquidation events, which could have crucial effects on price movements in the near future.

Key Takeaways

Bitcoin is currently trading around $88,000, following a week of volatility.
Two consecutive short liquidations totaling $600 million indicate potential price impacts.
A significant drop in USDT transaction volumes suggests a lack of market liquidity, which could hinder further price increases.
Short liquidations often create temporary resistance unless supported by strong buying activity.

Bitcoin

Bitcoin’s Short Liquidation Event Could Limit Price Gains

In a post from December 20, analyst Amr Taha draws attention to key developments in the Bitcoin futures market that could affect price growth. During a period where Bitcoin has struggled to find a solid price direction, the market recorded two notable short liquidation events pushing prices above the $87,700 mark.

Short liquidation happens when traders, who speculate that the price will fall, face losses as the asset's price unexpectedly rises. This situation often forces the closing of their positions by exchanges, which can further accelerate the price increase, creating a scenario known as a short squeeze. Traders typically increase short positions during bearish market sentiment, especially when Bitcoin dropped below $90,000 on two occasions last week.

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Source: CryptoQuant

According to Amr Taha, each of the short liquidations was over $300 million, resulting in total losses of around $600 million. It's worth noting that while these short liquidations can be bullish during the immediate price surge, they often create temporary resistance in the market unless followed by robust buying and increased trading volume. This is primarily because the initial price increase is driven by former short sellers needing to buy back their positions, leading to a short price squeeze rather than genuine market demand.

Declining USDT Transaction Volumes Indicate Decreased Liquidity

In addition, Amr Taha identified another critical factor that could restrict recent price gains for Bitcoin. He observed a steep decline in USDT transaction volume across both the TRON and Ethereum blockchains over the past month. On November 10, USDT transfers peaked at $13 billion for TRON and $35 billion for Ethereum. However, recent CryptoQuant data reveals these figures have plummeted to just $1.7 billion on TRON and $3.7 billion on Ethereum, representing drops of 86.9% and 89.4%, respectively.

Generally, a falling USDT transaction volume signals reduced market liquidity, limiting investors' ability to generate increased demand. Coupled with the anticipated temporary nature of the short-squeeze effects, Bitcoin may find it challenging to secure further price gains soon. As of the latest update, Bitcoin is trading at $88,321, reflecting a modest 0.72% increase over the past day.

Bitcoin
BTC trading at $88,326 on the daily chart | Source: BTCUSDT chart on Tradingview.com