Santa Rally after all? On-chain analysis shows that Bitcoin is primed for a short squeeze. If the bulls push Bitcoin to a daily close above $52k, we may see it sooner than later.  Covered: Bitcoin On-Chain Metrics The Funding Rate Metric Potential Short Squeeze Imminent One of the more critical on-chain metrics to look at […] The post Bitcoin Primed For A Short Squeeze appeared first on CryptosRus.

Bitcoin Primed For A Short Squeeze

Santa Rally after all? On-chain analysis shows that Bitcoin is primed for a short squeeze. If the bulls push Bitcoin to a daily close above $52k, we may see it sooner than later. 

Covered:

  • Bitcoin On-Chain Metrics
  • The Funding Rate Metric
  • Potential Short Squeeze Imminent

One of the more critical on-chain metrics to look at is the funding rate. Without getting too much in the weeds, it is essentially the cost of holding long positions in the perpetual futures listed on major exchanges. When the funding rate is high (positive), it is the sign of an overheated bullish sentiment and liquidations become more and more likely.

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Funding Rate Explained

You will hear analysts call this a “leverage” flush. This can cause a cascading effect on the price of Bitcoin, which is the funding rate most pay attention to. This is because when people get liquidated, if they don’t have a stop-loss, they become forced sellers, and it can tank the price even lower. On-chain analysts look for a negative or mixed funding rate to indicate health in the Bitcoin market.

A low funding rate “stipulates that traders with short positions are obliged to pay the funding rate to those with long positions.” When the funding rate is negative, it means traders are short (bearish) Bitcoin. Meaning they are willing to pay a premium to short. If Bitcoin is moving higher when funding rates are negative, it can cause a short squeeze. That is what is happening at the moment.

funding rate 12.24.21 credit: coinglass.com

How the Present Levels Effect the Funding Rate

Bitcoin has broken above $50,000, a very crucial psychological level. While funding rates are not negative for the exchanges listed above (Binance and Bybit), this spike in price without a spike in positive funding means shorts are very likely to close their positions to avoid paying their funding rates to longs.

credit: https://app.laevitas.ch/dashboard/btc/futures/basis

The weighted funding rate, as seen above, paints a very similar scenario that occurred at the beginning of October, with the price crossing above the funding rate level. Soon after in October, the funding rate did spike, but the price moved much higher to 69k. Things are looking quite similar to end of July and September.

credit: @loriscavadini

The funding rate (seen in yellow above at the bottom of the chart), looks like Bitcoin is primed for takeoff. However, we will need volume. Maybe bulls have lulled bears to sleep during this holiday. The target of $62,500, and the red box in general, would indicate renewed bullish strength for the intermediate-term.

Wen Short Squeeze?

With the stock market closed, and speculative volume low, Bitcoin appears to be setting up for a very likely short squeeze. Exchanges have a historically low amount of BTC, only 1.3 million to be exact. This will only add fuel to the fire. The consensus among experts, as Pentoshi points out, is that we need to get above 52k to make the move.

In short, those short bitcoin shouldn’t be surprised if they receive a liquidated lump of coal.

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