Bitcoin shorts squeezed $6.55B in August – Weak demand raises September doubts

Following a bullish August rally, all eyes are now on what September has to offer.

According to the data from CoinGlass, Bitcoin is set to close August with more than 24% ROI, marking the best monthly performance since the 2017 cycle.

The asset’s rally left the derivatives market speechless as it triggered a significant short squeeze, with bearish traders quickly liquidating their positions. 

As the chart below shows, over the last two weeks, more than $9.71 billion has been liquidated from the crypto market, including $6.55 billion in shorts and $3.16 billion in longs.

Thus, shorts accounted for about two-thirds of total liquidations, which means that they were heavily squeezed as Bitcoin surged higher.

Naturally, the next question is: Where is Bitcoin [BTC] headed next?

Based on the information provided by CryptoQuant, it looks as though the market participants are bullish, with Bitcoin’s funding rates on Binance increasing by more than 42% in less than a week, although BTC is consolidating below the $80,000 level.

Many leveraged positions have been liquidated, and the market has reset. This leaves the door open for another move higher.

But what if the on-chain data is telling an entirely different story? Is it possible that Bitcoin’s latest leg higher is simply the deleveraging unwind and not a sign of fresh spot demand?

If so, then the move could well be just a short relief rally, setting the stage for an even bigger bearish September.

Bitcoin weighs $9 billion liquidations against bearish signals

For a breakout past resistance, conviction is key.

However, with regard to the positioning of investors ahead of September, that conviction seems to be fading. According to SoSoValue, Bitcoin ETFs saw over $201 million in net outflows on the 28th of August, thus ending a 9-day inflow streak.

Moreover, a contrasting trend in the current cycle may affect BTC’s momentum.

As the chart below shows, smaller holders were the ones accumulating as Bitcoin dipped below $67k. In other words, wallets with less than 100 BTC saw heavy gross inflows.

But STHs are also among the first to cash in when the market turns risk-off or BTC fails to break key resistance, which could put more pressure on Bitcoin around the $80k level.

To exacerbate, this trend may already be starting to weigh on investors.

From a technical perspective, ETH/BTC is sitting at a key breakout level with analysts expecting a major move ahead. However, with Bitcoin’s spot demand weakening, STH supply rising, and sentiment turning bearish, BTC’s setup is looking less convincing.

If ETH/BTC breaks higher while BTC struggles, it could signal that capital is rotating away from Bitcoin, adding further pressure to the September outlook.

Keeping this in mind, BTC’s end-of-August rally could fail to deliver on its bullish promise. That’s where these over $9 billion crypto liquidations come into play.

The majority of liquidations came from shorts, indicating that the recent move may have been driven primarily by a short squeeze and not strong buying. If so, Bitcoin’s latest rally may fizzle out, leaving September on a bearish note.

Final Summary