Bitcoin's Short Squeeze Potential and $95K Breakout Implications: A Short-Term Bullish Outlook Amid Liquidation-Driven Volatility

The cryptocurrency market in late 2025 has been a rollercoaster of extremes, with Bitcoin's price action near $95,000 sparking intense debate about short-term bullish momentum and the risk of a short squeeze. After a dramatic 20% correction from its all-time high of $126,210 in October 2025 to a low of $82,000 in November, the market is now at a critical inflection point. This analysis examines the interplay between short interest levels, liquidation dynamics, and technical indicators to assess Bitcoin's potential for a rebound-and the volatility that could accompany it.

Short Squeeze Potential: A Derivatives Market in Turmoil

Bitcoin's derivatives market has become a battleground for leveraged positions, with open interest and funding rates offering key insights into short-term risks. As of November 2025, open interest for Bitcoin perpetual futures had dropped from a peak of 752,000 BTC during the November 21 low to approximately 683,000 BTC, signaling a sharp reduction in leveraged positions according to Coindesk. This unwinding reflects a market cleansing process, where overleveraged traders have been flushed out by cascading liquidations.

A critical catalyst for a potential short squeeze lies in the $87,000 level. Perpetual funding rates turned negative for the first time in a month during this period, a historically observed pattern aligning with local market bottoms. Negative funding rates indicate that short positions are paying longs to hold bearish bets, a dynamic that often precedes a reversal. If Bitcoin sustains a recovery above $87,000, large leveraged short positions on exchanges like Binance could face forced closures, injecting bullish pressure into the market.

Data from Coinglass further underscores this risk: the November liquidation cascade wiped out approximately $2 billion in leveraged positions, with 85% of liquidated positions being longs. While this highlights the fragility of leveraged longs, it also suggests that the remaining short positions are concentrated and vulnerable to a rapid price rebound.

The $95K Breakout: A Psychological and Technical Threshold

The $95,000 level represents a pivotal psychological and technical threshold for Bitcoin. After breaking below $100,000 for the first time since June 2025, the cryptocurrency's price action has been defined by a series of failed attempts to reclaim key support levels according to Amberdata. The $95,000 zone, however, is not just a number-it is a critical ascending trendline established since late 2023 according to Amberdata. A successful breakout above this level could trigger a retesting of the $100,000 psychological barrier and reignite bullish sentiment.

Technically, Bitcoin's price has already tested the $80,000 support level, with automated stop-loss orders posing a risk of further declines toward $74,000–$76,000. However, a sustained recovery above $87,000 would invalidate the bearish case and validate the possibility of a short squeeze. This scenario is further supported by the Fear & Greed Index, which plummeted to an extreme fear level of 11 during the November selloff, suggesting oversold conditions and a potential reversal.

Liquidation-Driven Volatility: A Double-Edged Sword

While liquidation events have historically amplified Bitcoin's volatility, they also create opportunities for short-term traders. The November 2025 correction below $85,000 triggered a $2 billion cascade of liquidations within 24 hours, affecting nearly 391,000 traders. This systemic risk highlights the fragility of leveraged positions in a derivatives-heavy market. However, it also means that a modest price rebound could trigger a feedback loop of forced buying, as short sellers scramble to cover their positions.

The interplay between ETF outflows and derivatives activity further complicates the picture. United States spot Bitcoin ETFs recorded $3.48 billion in outflows during November 2025, exacerbating the selloff. Yet, mid-cycle traders were the primary sellers, while long-term holders demonstrated continued accumulation. This divergence suggests that the current selloff may not reflect a fundamental shift in Bitcoin's value proposition but rather a correction driven by macroeconomic factors, including Federal Reserve hawkishness and a strong U.S. dollar according to NeuralArb.

Conclusion: Navigating the Crossroads of Risk and Opportunity

Bitcoin's short-term trajectory hinges on its ability to hold above $87,000 and reclaim the $95,000 support zone. A successful breakout would not only validate the short squeeze narrative but also signal a potential reentry into a bullish phase. However, the risks remain significant: further ETF outflows, rising bond yields and macroeconomic uncertainty could prolong the bearish correction.

For traders, the key is to balance opportunistic short-term bets with risk management. The derivatives market's current state-marked by negative funding rates, reduced open interest, and oversold conditions-suggests that the worst of the selloff may be behind us. Yet, as history has shown, liquidation-driven volatility can be both a catalyst and a trap. The coming weeks will test whether Bitcoin's bulls can capitalize on the short squeeze or if the market will succumb to deeper bearish forces.