Bitcoin Rally Faces Fresh Test as Short Squeeze Momentum Fades

Bitcoin is holding on to the bulk of its recent gains, trading around $79.239,46. The price is still up 23.80% over the past seven days. Behind the scenes, though, the situation is changing. A significant portion of the explosive rally has come from short positions being squeezed out of the market. With that fuel now fading, genuine demand on the spot market needs to take over if Bitcoin is to push higher.

Short squeeze gives way to spot buyers

Bitcoin’s recent rally has coincided with a notable decline in open interest. That points to many leveraged positions disappearing while the price rises sharply. According to trader Daan Crypto Trades, the liquidation and closing of shorts has played a major role during the first phase of the move.

Since the first local peak on Friday, the picture looks different. Accumulation has remained relatively stable, according to Daan, and spot market trading volume is still high. At the same time, open interest has continued to fall.

That is not necessarily a negative. Less leverage can actually make the rally healthier. It simply means Bitcoin cannot count indefinitely on traders being forced to close their short positions and buying BTC in the process.

The next push must therefore come mainly from ordinary spot buyers. Inflows into spot Bitcoin ETFs could play an important role here. If those inflows continue and BTC keeps trading around its current level, Daan says that would provide an interesting signal for the coming days.

Bitcoin is currently at $79.239,46, up 1.83% in 24 hours. Daily trading volume stands at roughly $56 billion, with a market cap of $1.59 trillion.

Long-term investors need to be increasingly patient

Alongside the short-term rally, a notable signal has emerged about Bitcoin’s changing character. Analyst Joao Wedson points out that the recent bottom is forming while Bitcoin still trades higher than it did more than 800 days ago.

In his view, Bitcoin has spent less time in genuine price discovery around new all-time highs in recent years. Instead, longer periods have emerged in which the price moves sideways.

That has implications for investors accustomed to the enormous returns of earlier Bitcoin cycles. The asymmetric relationship between risk and potential return is shrinking, according to Wedson, while it can take longer for a position to become profitable.

His chart shows that in earlier phases Bitcoin saw much shorter periods in which investors had to wait before their purchase returned to profit. In recent market cycles, those waiting periods have stretched considerably.

Bitcoin must now prove demand will hold

For the short term, then, the key question does not rest solely with the price. The composition of demand is becoming more important.

The shorts have largely been squeezed out of their positions, while spot activity remains strong. If spot buyers and ETF inflows keep supporting demand, Bitcoin can sustain its momentum. If that demand drops away, a key engine disappears just as the short squeeze is losing its force.

Bitcoin is therefore facing a new test. The rally is still intact, but from this point onwards it is increasingly down to genuine buyers to do the work.