Bitcoin (BTC) lost over 15% of its value from January 11 highs to its lows on January 12. This sudden price shift caused a bearish sentiment to surge, encouraging traders to bet against the leading cryptocurrency. In this context, Bitcoin could be on the verge of seeing a short squeeze, making its price soar.
Not only did Bitcoin suffer from that, but other cryptocurrencies also experienced sell-offs and more short positions against them. For example, Ethereum (ETH) lost nearly 10% from its highest price on January 11 to its lowest the next day.
Interestingly, traders create liquidity pools upward by opening a short position, which can become market makers’ targets. If the cryptocurrency reaches these liquidity pools, the positions are closed or liquidated, skyrocketing the price further. This is what is called a short squeeze.
Finbold turned to CoinGlass’s liquidation heatmaps on January 16 to understand the risks of a short-squeeze event.
Bitcoin (BTC) could reach $50,000 with a short squeeze
Notably, Bitcoin has a liquidity pool worth $575.95 million at $49,281 of the weekly time frame. Before that, CoinGlass’ chart shows huge amounts of awaiting short position liquidations from the current prices at around $42,800.
Bitcoin could soar 15% by erasing this available liquidity, an easy target for bullish whales. Moreover, there is almost no liquidity to the downside, favoring a price pump at any moment this or the next week.
Short squeeze alert for Ethereum (ETH)
In the meantime, Ethereum has a slightly more balanced scenario with some distributed liquidity downwards. Nevertheless, the most relevant weight points to $2,700, with $40 million in concentrated liquidations waiting for a short squeeze at this price.
Breaking the closest positions at $2,560 to $2,570 would be crucial to start a liquidation event. Reaching the highest target would mean over 8% gains for Ethereum investors buying at current prices, slightly above $2,500.
However, it is important to understand that concentrated liquidity does not guarantee these liquidations will occur. Demand is required for prices to increase, which is necessary to trigger a short squeeze. In conclusion, the cryptocurrency market is unpredictable, and everything could change in a matter of hours or even minutes.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.