Bitcoin's Imminent Short Squeeze and Bear Trap Setup: A Strategic Entry for Traders

Bitcoin’s September 2025 price action has ignited a compelling debate among traders about an impending short squeeze and bear trap setup. With open interest in perpetual futures flat at $15 billion and funding rates cooling to 6% from double-digit levels earlier in the month, the market appears to be in a precarious equilibrium [1]. This article examines the technical and institutional factors underpinning this setup, leveraging historical patterns, on-chain data, and trader insights to outline a strategic entry for short-term traders.

Historical Patterns and Institutional Positioning

Bitcoin’s consolidation between $110,000 and $120,000 in September 2025 mirrors a classic bear trap scenario. Historically, September has been a weak month for Bitcoin, averaging a -3.7% return since 2013 [4]. The current range-bound action aligns with the 2021 Ethereum correction, where a 30% drop in September preceded a November rally. Institutional positioning further reinforces this narrative: major players are accumulating Bitcoin, with 19,130 addresses holding 100+ BTC as of September 2025 [1]. This accumulation, coupled with the U.S. Strategic Bitcoin Reserve’s establishment in March 2025, signals a structural shift toward institutional adoption [5].

Open Interest, Funding Rates, and Liquidation Dynamics

The open interest surge to $34 billion in August 2025—driven by leveraged long positions—has created a fragile equilibrium. While positive funding rates (6% as of September 5) suggest bullish sentiment, the sharp increase in leverage earlier in the month raised liquidation risks [4]. Recent data reveals a critical inflection point: on August 18, $14.32 million in BTC short positions were liquidated within an hour as Bitcoin reclaimed $112,000 [2]. This event underscores the vulnerability of short sellers, who now face a potential squeeze if Bitcoin breaks above $123,000.

Luca’s Bear Trap Analogy and Market Psychology

Trader Luca’s analysis highlights a deliberate bear trap orchestrated by market makers. He draws parallels to the 2024 consolidation phase, where Bitcoin spent seven months in a sideways pattern before breaking out to $109,000 in November [1]. The current setup—characterized by unused lows and liquidity clusters at $113,000—suggests a similar strategy to lull short sellers into complacency. Luca argues that the absence of fresh higher highs is not bearish but rather a sign of short protection, with market makers maintaining an artificial range-bound environment [3].

Strategic Entry and Risk Management

For short-term traders, the key entry points lie just above critical support levels. A breakout above $123,000 could trigger a cascade of forced buying, as short liquidations create self-reinforcing upward momentum [5]. Position sizing should adhere to 1-3% of capital per trade to mitigate risk, while stop-loss levels should be placed below $105,000 (the 200-day moving average) and $103,931 (a deeper target) [6]. Volatility metrics, including Bitcoin’s compressed relative volatility (35% as of July 2025), suggest a maturing asset class, but traders must remain cautious of macroeconomic triggers like Fed rate cuts or regulatory announcements [2].

Conclusion

Bitcoin’s September 2025 setup presents a high-probability short squeeze scenario, supported by historical patterns, institutional accumulation, and on-chain liquidation data. While the bear trap remains a risk, strategic entries above $123,000—paired with disciplined risk management—could position traders to capitalize on an explosive move. As Luca notes, the market is in a calculated phase designed to test bearish sentiment; those who recognize the trap may find themselves on the right side of history.

Source:
[1] Bybit x Block Scholes Crypto Derivatives Analytics Report [https://www.blockscholes.com/research/bybit-x-block-scholes-crypto-derivatives-analytics-report-sep-5-2025]
[2] Bitcoin analysts see a 'massive' move as BTC price regains ... [https://www.coinglass.com/ru/news/689369]
[3] Bitcoin sets 2024-style bear trap ahead of 'major short squeeze' [https://cointelegraph.com/news/bitcoin-sets-2024-style-bear-trap-major-short-squeeze-trader]
[4] Ethereum's September Slump - Biggest Bear Trap or Start? [https://www.linkedin.com/pulse/ethereums-september-slump-biggest-bear-trap-year-just-nantha-kumar-l-5nxoc]
[5] Bitcoin's $123000 Short Trap About to Turn Bears Into Rocket... [https://medium.com/@BrazilNex/breaking-brazilnex-squeeze-alert-bitcoins-123-000-short-trap-about-to-turn-bears-into-rocket-696d150efd30]
[6] How the Trade War is Reshaping the Global Economy [https://pintu.co.id/en/news/201863-whats-the-outlook-for-crypto-in-september-historical-data-shows-the-following-facts]