Is Bitcoin’s short squeeze signaling a strong rally post-Christmas?

• BTC has surged by 4.16% over the past 24 hours.
• Rising open interest and declining funding rate suggest a high demand for Bitcoin’s short trade.

Over the past 24 hours, Bitcoin [BTC] experienced small gains as the markets enter the Christmas mood. As of this writing, Bitcoin was trading at $98,056. This marked a 4.16% increase over the last day.

Over Christmas Eve, Bitcoin surged from a low of $93,461 to a high of $99,419. This uptick over the past day has left analysts talking over BTC performance post-Christmas.

Inasmuch, Cryptoquant analyst Traders Oasis has suggested that BTC will move sideways during the Christmas week then distribution movement will follow as demand for short positions rises.

Bitcoin’s demand for short positions soars

According to Trader Oasis, Bitcoin has experienced a correction the past weeks over the lack of institutional demand.

Source: Cryptoquant

In his analysis, he posited that the Coinbase premium index did not accompany the price rise, thus leading to a retrace. However, the analyst expects the market to continue with the rise as the index has entered negative territory.

Source: Cryptoquant

According to him, the continuation of the potential rise is supported by funding rates and open interest.

As such, the funding rate has declined which is a positive sign for a bull market, while open interest has surged over the past days.

Source: Cryptoquant

When the funding rate declines while open interest rises, it indicates that investors are opening short trades. With investors opening short trades, it suggests that they expect prices to drop.

However, increased demand for short trades could result in a short squeeze as buying pressure increases. This spike attracts more buyers, thus creating a self-reinforcing rally.

We can see this demand for Bitcoin over the past three days. Over this period, the BTC fund flow ratio has spiked from 0.084 to 0.137.

Source: Cryptoquant

When the fund flow ratio rises, it implies that more money is being invested into Bitcoin. Such a trend is a bullish signal suggesting that investors are willing to allocate more capital to BTC. This leads to rising prices because of increased buying pressure.

Source: Cryptoquant

Additionally, the increased inflow means more BTC are moving off exchanges thus raising scarcity. With more traders turning to buying the crypto, it’s now becoming scarce as evidenced by a rising stock-to-flow ratio.

When Bitcoin becomes more scarce, its prices rise as higher demand with low supply leads to higher prices.

Read Bitcoin’s [BTC] Price Prediction 2024-25

What’s next for BTC?

With investor’s demand for short trades rising, it seems these traders could suffer from a short squeeze. This is when the demand for those taking short causes the opposite market reaction driving prices up.

Therefore, if the demand remains constant while supply is falling as observed, we could see Bitcoin reclaim the $100k resistance post-Christmas. However, if the crypto continues trading sideways, it might drop to $96600.