Bitcoin, Ethereum, Dogecoin Gain As Trump Reaffirms Crypto Support: Are Short Sellers Exiting The Market?

Bitcoin, Ethereum, and Dogecoin have all seen significant gains in recent weeks, with Bitcoin reaching new all-time highs and Ethereum and Dogecoin experiencing substantial price increases. This surge in cryptocurrency prices comes amidst renewed support for cryptocurrencies from former U.S. President Donald Trump. However, the market dynamics surrounding these gains have raised questions about the role of short sellers and their potential exit from the market.



Bitcoin's price has been on a tear, climbing from around $58,000 in late January to over $100,000 in early February. This remarkable rally has been fueled by a combination of factors, including the release of U.S. inflation data, long-term holders accumulating more coins, and a bullish market sentiment. Ethereum, the second-largest cryptocurrency by market capitalization, has also seen significant gains, with its price rising from around $2,100 in late January to over $2,600 in early February. Dogecoin, a meme-based cryptocurrency, has experienced a meteoric rise, with its price increasing by over 1,000% year-to-date.



The recent gains in these cryptocurrencies have been accompanied by a surge in short positions, particularly in Bitcoin and Ethereum. According to data from CryptoQuant, short-term Bitcoin holders have been selling at a loss, with the Spent Output Profit Ratio (SOPR) for Bitcoin's short-term holders (STHs) trailing downward over the past week. As of February 20, 2025, BTC's STH-SOPR was at 0.99, indicating that investors who have held their coins for less than six months are, on average, selling at a loss below their acquisition basis. Similarly, Ethereum's short-term holders have also been selling at a loss, with the SOPR for ETH's STHs falling below 1.



The high levels of short interest in Bitcoin and Ethereum have raised concerns about a potential short squeeze, which could drive prices even higher if short sellers are forced to close their positions by buying back the asset. Historically, periods of high short interest have been followed by significant price increases in the cryptocurrency market. For example, in November 2021, Ethereum's price rose 10% the last time short liquidations hit these levels around November 9.

However, not all short positions are related to carry trades. Some hedge funds may be placing outright bearish bets due to the recent market performance of cryptocurrencies. Options market data provides additional insight into trader sentiment, with current trends showing a preference for put options in the near term, indicating short-term caution among traders. Interestingly, longer-dated options display higher prices for calls, suggesting more optimistic expectations for cryptocurrency prices in the longer term.



The surge in short positions comes at an interesting time for Ethereum. In December 2024, ETH exchange-traded funds (ETFs) showed robust performance, attracting over $2 billion in new funds, including a record-breaking weekly inflow of $854 million. This institutional interest contrasts with the bearish sentiment reflected in the high short positions. The Kobeissi Letter, a market commentary platform, suggests that these high levels of short interest could potentially lead to a "short squeeze" scenario, driving Ethereum's price higher if market movements force short sellers to close their positions by buying back the asset.

In conclusion, the recent gains in Bitcoin, Ethereum, and Dogecoin have been driven by a combination of factors, including market sentiment, institutional interest, and geopolitical events. The surge in short positions in these cryptocurrencies has raised concerns about a potential short squeeze, which could further drive prices higher. However, the market dynamics surrounding these gains are complex, and it remains to be seen whether short sellers will exit the market entirely. As always, investors should exercise caution and conduct thorough research before making any investment decisions.