Bitcoin short squeeze signals potential crypto market reset

Traders Union
All News
Crypto
Bitcoin short squeeze market reset

Highlights

Bitcoin surged 23% in the past week, driven by forced buying with $1.37 billion and $739 million in shorts liquidated on Aug. 19 and 21, while bitcoin ETPs saw net inflows of 31,740 BTC.
CME bitcoin futures basis climbed to 11.1%, the highest since January 2025, as perpetual futures open interest dropped to 284,000 BTC and funding rates normalized.
Bitcoin's correlation to gold rose to 0.52, a four-year high, diverging from equities after U.S. Treasury Secretary Scott Bessent's policy moves supported demand for scarce assets and geopolitics favored bitcoin’s narrative.

Market signals point to momentum shift

As reported by The Block, bitcoin has gained 23% over the past week, marking its strongest one-week return since the post-election rally in November 2024 as activity picks up across crypto markets. K33 Head of Research Vetle Lunde said spot and perpetual futures volumes jumped 188%, while CME volumes rose 152% and annualized bitcoin futures basis on the exchange climbed to 11.1%, its highest level since January 2025.

Bitcoin exchange-traded products also recorded net inflows of 31,740 BTC, their strongest week since the October 2025 highs, according to Lunde's report, titled "Altitude sickness can wait." He said much of the initial breakout came from forced buying, with $1.37 billion in bitcoin shorts liquidated on Aug. 19 and another $739 million on Aug. 21, based on K33 data.

The squeeze pushed notional perpetual futures open interest down to 284,000 BTC, its lowest level since May, while funding rates returned to neutral. Lunde said major short squeezes have historically appeared during bitcoin bottoming phases, when bearish positioning becomes crowded and sell-side exhaustion reaches an extreme.

Other indicators also shifted with the rally. Bitcoin's six-month 25-delta options skew turned negative for the first time since September 2025, meaning calls became more expensive than puts after 11 consecutive months in which traders paid a premium for downside protection. Lunde said similar flips in long-tenor skew have historically been reliable reversal signals, while bitcoin also reclaimed its 50-day, 100-day, 200-day and 200-week moving averages in just four days, faster than in any prior cycle.

Bessent actions add macro support

The rebound is also unfolding alongside changes in the macro environment tied to U.S. Treasury Secretary Scott Bessent. Lunde said Bessent's push to increase Treasury buybacks of long-term bonds signals a willingness to intervene in markets and helps spur demand for scarce assets.

During the period, bitcoin and gold rose while equities fell, with bitcoin's 90-day correlation to gold climbing to 0.52, its highest since October 2020, and its Nasdaq correlation dropping to 0.38, a one-year low, according to K33. Lunde said that divergence is encouraging and argued bitcoin could be well positioned if efforts to lower long-term U.S. yields intensify, even as the cryptocurrency remains 36% below its all-time high.

Bitwise Chief Investment Officer Matt Hougan said another Bessent-related development strengthens that setup. In a note to clients on Tuesday, Hougan highlighted Bessent's announcement of an "economic onslaught" against Iran's global financial connections, including threats to remove entities facilitating money laundering for Iran from the U.S. dollar system.

Hougan said the two developments reinforce different parts of bitcoin's investment case, its scarcity when governments seek to push down long-term borrowing costs, and its function as a globally transferable monetary asset outside any single country's banking system. He said a more geopolitically weaponized financial system increases the value of a neutral financial network.

Our earlier coverage of Scott Bessent’s proposed expansion of long-dated U.S. Treasury bond buybacks examined how the Treasury could use tools like larger buybacks and the Treasury General Account to try to ease pressure on long-term yields. We also outlined the main objections: without deficit progress and with limited ability to act like the Federal Reserve, repeated interventions may not sustainably lower borrowing costs and could undermine investor confidence.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.