Why Bitcoin Short Sellers Are Feeling Optimistic as $90K Approaches

Bitcoin bears experienced a fortunate turn of events following a 23% drop in Q4, and they continue to position themselves aggressively for further gains as the year draws to a close.

Key Takeaways

Bitcoin short sellers are gaining confidence after a recent 23% decline in Q4.
A notable drop in institutional interest and ETF demand has been recorded.
The breakdown of the basis trade has made traditional strategies less attractive for large investors.
Analysts are forecasting potential price dips, with critical levels around $80K and $90K being closely monitored.
Options traders are focusing on key levels for potential market movements.

Bitcoin shorts

Recent data from CryptoQuant indicates that the level of selling pressure on Bitcoin has now surpassed the dip seen during the early 2025 tariff conflicts initiated by Trump, as reflected by a notable decline in the Taker Buy Sell Ratio metric.

Bitcoin Taker Buy-Sell Ratio

Source: CryptoQuant

Over the past five days, Bitcoin (BTC) short sellers have regained a leading position. This shift comes amidst a reduction in ETF demand during the holiday season and a generally weak market sentiment.

Decline in Institutional Interest

Since December 18, U.S. Spot ETF products have seen successive days of net outflows. This trend is part of a broader decline in ETF demand that started in mid-October. Additionally, the Open Interest on the Chicago Mercantile Exchange has sharply decreased, falling below $10 billion for the first time since September 2024. This suggests a clear shift towards risk aversion among institutional investors.

CME Futures Open Interest

Source: Velo

This drop in institutional participation is primarily due to the breakdown of the basis trade strategy. This involves purchasing spot ETFs while simultaneously shorting the same amount in CME futures to earn yield. After peaking near 10% in early 2025, this yield has now decreased to approximately 5%, making the strategy less appealing and more risky for hedge funds and large investors.

With the current lack of strong ETF demand and no significant catalysts on the horizon, analysts predict a potential drop below $80K by early 2026. However, if Bitcoin were to surge to $90,600, it could lead to the rapid liquidation of leveraged shorts, estimated to be about $3 billion at that level. There's also a secondary target of $88.7K for those seeking liquidity.

Bitcoin Liquidation Levels

Source: CoinGlass

Conversely, leveraged longs positioned at $83.9K and $86.1K could face liquidation during any sharp downward moves. Notably, options traders are also placing bets around these levels. Data from Arkham shows that the highest options trading volumes in the past 24 hours have been concentrated at $85K for potential dips and at $88K and $90K for projected rallies.

Options Volumes

Source: Arkham

Overall, market participants appear to be bracing for a range-bound price action as the new year approaches, with major players actively hedging against a potential drop to $85K.

Conclusion

As we head into the new year, the Bitcoin market remains uncertain, with significant implications for short positions and potential price movements. Investors should stay informed about market dynamics and trading strategies as they navigate this evolving landscape.