Bitcoin: Caution warranted as BTC short squeeze risk rises

• Bitcoin shorts increase as bearish conditions intensify.
• Whales are driving current price action, but a pivot could trigger short liquidations.

The Bitcoin and altcoin market is going through the most bearish week of 2023 so far. A situation that has resulted in liquidation of long positions as prices crashed. Many derivatives traders have consequently switched to short positions, but there is an unforeseen risk.

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Bitcoin’s bearish performance so far this week has enticed many traders to execute short positions to take advantage of the falling prices.

But here lies a potential risk of liquidations in case whales start buying up BTC, triggering a bullish pivot. Whales often take advantage of such situations because the liquidations widen the directional movement, allowing them to take advantage of it.

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4/ Bearish:
– Jobs added >= 224k
– Unemployment <= 3.4%

Bullish:
– Jobs added < 224k
– Unemployment > 3.4%

Seems like the market is set up for a squeeze after yesterday’s action, traders are very short on the crypto market. But we need a downside miss IMO! pic.twitter.com/qrxADT6IdG

— tedtalksmacro (@tedtalksmacro) March 10, 2023

Assess the state of Bitcoin derivatives

An increase in Bitcoin Funding rates suggests that there is currently a strong increase in shorts. This means there is an increased risk of shorts liquidation if whales suddenly start buying.

Such a scenario is more likely to take place when there is a high level of leverage in the market. The leverage level is still low so far, so the risk of liquidation may not be as pronounced.

Source: CryptoQuant

The BTC exchange reserve calculation indicates a pivot after the last selling pressure. Currency reserves are on the rise, thanks to the latest selling pressure.

On the other hand, the strong pullback observed this week has also offered a lower entry point that could entice many to start rallying.

Read Bitcoin [BTC] Price prediction 2023-24

The weighted sentiment metric is now at its highest weekly level on expectations of a relief rally. In addition, the average coin age has been on the rise over the past three days, indicating that there has been significant accumulation.

Source: Sentiment

One can also interpret it as a sign that many traders are HODLing amid the ongoing selling pressure. Looking at Bitcoin’s supply distribution reveals outflows from addresses of between 10,000 and 100,000 BTC over the past seven days. On the other hand, addresses holding between 10 and 10,000 BTC have accumulated especially in the last 24 hours.

Bitcoin investors should keep an eye on whale activity. The recent price crash kicked into high gear following a large increase in age consumption, confirming a large number of sales.

The same calculation can provide insight into the next move of BTC whales, especially one related to accumulation.