WallStreetBets Better Beware, A New Bitcoin Short Squeeze Is Possible

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The phrase: so you are saying a short squeeze is possible? became stuff of legends on social media board Reddit this year.

WallStreetBets, a 7 million strong group of amateur traders on Reddit decided to take on the most powerful of Wall Street’s elite: the hedge funds, the so-called Apex Predators of the financial world (with all due respect for Anthony Pompliano trying to takeover that term to describe Bitcoin, it was originally used to describe hedge funds).

Memestocks

If you recall, the visitors of the popular WallStreetBets forum decided to go up against Wall Street hedge funds and let the value of GameStop stocks run wild. By buying stocks that experienced analysts were betting against, they forced them to cover their short positions as the stock price went up, creating what is called a short squeeze.

Hedge funds had to bail each other out and trading app RobinHood even temporarily stopped trading in these stocks, now known as Memestocks.

$btc

Looks primed for 36k. Probably will retraced it all tomorrow though.

— Algo Trader (@sashiminakamoto) July 25, 2021

Fast forward six months and many on Wall Street seem to have bought shorts for Bitcoin as well, betting that the world’s biggest cryptocurrency would drop to $20,000 or even lower. Last week Monday, when stock markets globally fell because of worries over the spreading Delta variant, Bitcoin indeed broke downwards through the psychologically important $30k level.

IMPORTANT #BITCOIN UPDATE!!

This is HUGE 🚀https://t.co/bkQiHmNVvq

— Josh 💎🙌 (@CryptoWorldJosh) July 24, 2021

By Tuesday however, it came roaring back and at time of writing on Sunday it is already trading for $34,000, a 15% gain in a week.

Long to short ratio

Some crypto quants are therefore expecting that a short squeeze now becomes a possibility.

As analyst Sashimi Nakamoto noted:

Leverage ratio (open interest divided by exchange reserves) reached levels last seen in the peak of March and April 2021. Funding is still slightly negative, indicating higher short interest than long. If BTC retains the lower range of 30K, shorts will begin to squeeze as BTC moves to the middle point of the range, likely accelerating in the coming days/weeks. At the same time, whales at Bitfinex are long-to-short at a ratio of 14x, while retail is still largely short.

He then concluded that a: BTC short squeeze to $40k+ likely