Today, the ratio of Bitcoin shorts to longs has hit 1.4, which is the highest ratio so far this year. Last time the ratio breached 1.2, back in April of this year, there was a short squeeze which moved the BTC price up $1000 within an hour.
Short Squeeze on the Horizon?
Alistair Milne, CIO of Altana Digital Currency Fund, brought this to the attention of his Twitter followers earlier today:
The ratio of BTCUSD shorts vs longs on Bitfinex has hit 1.4 … it has never been this high in 2018 (previous peak was 1.2)
When it was 1.2, there was a short squeeze that moved the price +$1000 in one hour#bitcoin pic.twitter.com/ciMVdKIIx0
— Alistair Milne (@alistairmilne) August 15, 2018
A short squeeze arises when the price of an asset with a large number of short positions moves higher quickly. This upward price movement forces the liquidation, or closing, of some of these short positions, which in turn, drives the price higher still. This creates a cascading effect where the higher the price goes, the more shorts that are “squeezed.”
Traders Take Note
Other traders have been observing this short vs. long disparity, with some expecting that upwards price volatility for Bitcoin is imminent.
First little mini squeeze happened just now.
What are the bears doing?
Adding to the shorts, obviously.
Either someone shorting on Finex knows something we don't or this is the most idiotic trading in quite a while.
Very unlikely we go down without first shaking them out.
— DonAlt (@CryptoDonAlt) August 15, 2018
The perfect storm for a #Bitcoin rally is brewing. #Shorts are near record highs.#Sentiment is horrible.@CNBCFuturesNow are going short.#CNBC poll shows 85% think we are going lower.
Time Cycles due for push up.
The recipe for a bottom to form is almost complete. $BTC pic.twitter.com/TSvlpbjHmB
— Alex Saunders (@AlexSaundersAU) August 15, 2018
CNBC Cryptotrader host, Ran NeuNer, was also quick to point out the high of short positions, noting too that the Cboe futures close today, which often close prior to upwards price momentum:
Open short positions on Bitcoin are at a 12 month high today. There is also a CBOE futures close today. We could see a short squeeze again. pic.twitter.com/Yogyq7oAna
— Ran NeuNer (@cryptomanran) August 15, 2018
Bitcoin has been through a particularly rocky period since the Cboe ETF decision was postponed earlier this month. Many traders and investors will be hoping for a relief rally, and the potential incoming short squeeze could provide just that.