$10B in Bitcoin shorts at risk: Is crypto heading into a major liquidation event?

Could this week be the worst crypto liquidation of the cycle?

From a technical perspective, it’s easy to see why longs could be at deeper risk. Despite some relief from the geopolitical tensions, the market is barely responding. According to SoSoValue, the U.S. investors seem to have turned their back on digital assets as ETFs are down big in the week. However, in the background, there is one chart that actually stands out on the bear’s side.

As the chart shows, Bitcoin’s Open Interest has crossed an 8-month peak and climbed to the level seen prior to the October crash. Put simply, leverage is exploding while price is barely moving. Adding to this, a trader recently went live with a 40x short on BTC, showing just how aggressive the positioning has become.

The key takeaway? The story doesn’t end here.

According to CoinGlass, Bitcoin [BTC] has nearly twice as much liquidation liquidity above the price than below. Specifically, $10 billion in potential short liquidations compared to $5.6 billion in long liquidation supply. This means that if the BTC price goes up, a short squeeze is in the works.

That said, the positioning of the market technically makes perfect sense. As mentioned above, the crypto market is having a tough time attracting liquidity, while speculators are clustering around the $60k level. That said, the macro picture could be pointing to something completely different. And that’s exactly why this week could set the stage for one of the biggest crypto liquidation events of the cycle.

Crypto heads into high-stake macro week

Crypto is set to have a big macro week ahead, but the conditions seem to be less bearish.

Three major macro events are set to occur within the next 72 hours, starting with the U.S. Foreign Portfolio Inflows on Monday. On Wednesday, the FOMC Minutes will be released, followed by the Japan CPI on Thursday. At the same time, the Federal Reserve is now pricing in lower chances for a rate hike in September. The odds for a hike have fallen below 32.5%, reaching their lowest level since the last FOMC meeting.

This development is also positive news for the markets. If the data released this week does not change the current narrative, macro forces will be less hostile to crypto this week. The key takeaway? The S&P500 index is now at its highest ever valuation in history, surpassing even the infamous 2000 dot-com bubble peak.

That naturally gives crypto a relative edge.

With macro FUD cooling, rate-cut expectations falling, and the U.S. stock markets looking stretched, the coming week could see stronger capital flows into crypto if the data stays within expectations. And this is where those massive short positions become interesting. If fresh liquidity starts flowing into crypto, that positioning could quickly become fuel for a major short squeeze.

This could therefore be the week crypto sees one of its biggest liquidation events of the cycle.

Final Summary