How Bitcoin’s record run could ignite a $2.5bn ‘powder keg’ of short interest

A large number of short positions on Bitcoin have been set higher than $70,000.
A price surge in April could trigger a short squeeze.
Traders are piling on leverage to maximise returns.

In every bull run there are bears.

And in Bitcoin’s record-setting recent run, a number of bearish traders have placed more than $2.5 billion worth of bets that the top cryptocurrency will tumble from its peak.

To maximise their potential windfall, the short-sellers piled on leverage in the futures and perpetual markets, according to analysis from Pav Hundal, lead market analyst at crypto exchange Swyftx.

“There is a powder keg of short interest right now above $70,000,” Hundal told DL News. “A spark of volatility and we could see a squeeze develop that potentially brings about another parabolic run.”

Leverage, of course, is investor-speak for borrowing capital to multiply the value of a trading position.

The last place an investor with loads of leverage wants to be is on the wrong side of a parabolic market, a period when asset prices move a great distance in a very short period.

This could happen as soon as this month as Bitcoin tops itself amid a bout of euphoria in the market, Hundal said.

Several factors — including the US inflation figures to be released Wednesday, the upcoming halving event, the continuous uptake of Bitcoin ETFs — are affecting the trajectory of the world’s most valuable cryptocurrency.

Join the community to get our latest stories and updates

A $2.5 billion risk

The traders have made bets on futures and perpetual markets that Bitcoin’s price will drop after reaching the $73,700 to $76,450 range.

This means that if the price exceeds $73,700 — the all-time high reached in March — then these traders’ positions will become unsustainable, Hundal said.

This would force them to cover their positions by buying Bitcoin at a higher price, which could then trigger a short squeeze.

A short squeeze occurs when an asset’s price starts to rise rapidly, forcing traders who had bet on its decline to buy back the asset to close their positions and cut losses, which in turn drives the price up even further.

The value of these speculative positions on Binance, OKX and Bybit, aimed at profiting from a potential decrease in Bitcoin’s price, exceeds $2.5 billion, according to CoinGlass data.

Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.