NOIDA (CoinChapter.com)— Bitcoin’s recent price drop has shorts traders drooling, anticipating gains as they speculate further drop in BTC price. However, the increasing interest in Bitcoin short contracts could force market participants to speculate about the possibility of a short squeeze.
A short squeeze is a rapid price increase driven by short sellers covering their positions.
Bitcoin price dropped suddenly on June 11, dropping to a daily low near $66,500 before making a marginal recovery. The downside movement could see more traders taking short positions against BTC prices, further fueling the chances of a short squeeze.
Why BTC Could See A Short Squeeze
The recent dip in Bitcoin’s price has likely attracted more short sellers, who are betting on further declines. However, the same interest could result in a short squeeze if the price reverses and begins to rise.
A post on X noted that there are over $12 billion worth of Bitcoin short positions, up to around the $74,000 mark. If Bitcoin price reaches near the $74,000 level, traders face the risk of liquidation, leading to substantial losses.
As a result, Bitcoin shorts traders would be forced to cover their positions, creating additional buying pressure and accelerating the price increase.
Support levels play a critical role in this scenario. Market data suggests strong buying sentiment around the $65,000 mark, suggesting robust support at this level. If Bitcoin stabilizes here, it could encourage buying activity, leading to a price rebound.
This rebound, in turn, could compel shorts traders to cover their positions, thus driving prices up rapidly.
A significant rise in open interest and trading volume suggests increasing bullish sentiment for BTC, which could be disastrous for Bitcoin short traders. The sustained rise from March to May underscores trader interest and speculation.
Moreover, the heightened interest could help Bitcoin start a rally as bullish momentum builds.
If traders view the current decline as a temporary dip, they might start buying at these lower levels. Such a rally could catch Bitcoin short contract traders off guard, forcing them to cover their positions and contributing to a sharp price increase.
However, not everyone thinks a short squeeze is likely. One user noted that Bitcoin might face suppressed demand due to derivative products like spot Bitcoin ETFs setting a $72K ceiling.
Additional Cues Coming From Bullish Setup
Meanwhile, the BTC price has formed a bullish technical setup called the ‘bull flag pattern,’ which could further derail Bitcoin short traders’ plans.
A bull flag pattern forms when a crypto token’s price experiences a near-vertical rise, creating the flag pole. This pattern commonly emerges in assets that are in a strong uptrend.
Following the steep ascent, the asset undergoes a period of consolidation, which creates the flag of the pattern. Despite the initial strong rally, the price holds steady as buying pressure persists. Typically, a breakout from this consolidation phase triggers another significant uptrend.
The pattern reaches completion when the price breaks out from the flag area, effectively resuming the prior upward trajectory. Traders project the breakout’s price target by adding the length of the flag pole to the breakout price level.
According to the rules of technical analysis, if the token confirms the bullish technical pattern, BTC price might rally over 78% to reach the pattern’s theoretical price target near $118,100.
