This current bear market broke a new record, and it’s a negative one: As of writing this, the leading margin trading exchange Bitfinex had broken its all-time a high number of open short positions on Bitcoin. This has happened as the short positions just crossed 41,000 BTC.
The bad news is for the bulls: As more people are thinking that the current bear market will continue, as well as keep on selling Bitcoin and selling Bitcoin by opening short positions, we are likely to see new yearly lows. Today, Bitcoin recorded a new annual low which is around $3,200 as of writing this.
The good news is that a significant move up could cause mass liquidations of those newly opened short positions, or in other words, a short squeeze.
A short squeeze is when a sharp move up forces the sellers to close their short positions, as those open positions are reaching their stop losses. The effect is the same as Dominoes – as more and more shorts are getting closed, the buying orders are reaching higher, and more short positions are getting closed as well.
The Recent Short All-Time Highs Ended in a Short Squeeze
As can be seen on the last six months’ Bitfinex short positions following chart, the recent occurrences whereas the shorts number reached the 38,000 mark or beyond, it didn’t take long, and a short squeeze took place.
The August 22 short squeeze sent Bitcoin price from $6250 to $6950. This has happened as Bitmex exchange went down for scheduled maintenance. Another occasion was on October 15; Tether had crashed and ignited a massive short squeeze sending Bitcoin to $7000 again.