Bitcoin Short Squeeze Potential as $6.5 Billion in Short Positions Face Liquidation Risk

Bitcoin short positions have increased as BTC price approached $81,000. Analysts suggest a potential short squeeze could drive prices back toward $90,000 if the market corrects. Derivatives data from CoinGlass indicates over $6.5 billion in short positions are at risk near the $92,000 level.

A significant shift in Bitcoin's positioning has occurred, with Binance open interest rising more than 30% from October 2025 lows. This suggests increased activity in the futures market, potentially leading to a relief rally. The imbalance in short and long positions favors a rebound in the short term.

BlackRock has recently deposited $163 million in Bitcoin and Ethereum into Coinbase Prime. These movements highlight growing institutional interest in the crypto market. The firm's activity aligns with broader inflows into its spot ETFs, including the iShares Bitcoin Trust ($IBIT) and iShares Ethereum Trust ($ETHA).

Why Did This Happen?

Bitcoin's price has dropped 14.5% over the past 16 days, reaching an all-time low on the Crypto Fear & Greed Index. The index currently reads 16, indicating extreme fear. This bearish sentiment has led to a buildup of short positions. Analysts suggest this positioning could drive a short squeeze as buyers re-enter the market.

Bitcoin's recent dip has triggered a large cluster of long liquidations near $80,000 and $83,000. With that downside liquidity exhausted, attention is shifting to higher levels. A move toward $92,000 could create upward pressure by triggering short liquidations worth over $6.5 billion. Conversely, a drop to $72,600 would only threaten about $1.2 billion in short positions.

How Did Markets React?

BlackRock's recent $163 million deposit into Coinbase Prime has been seen as a positive signal for the crypto market. The firm has moved 1,156.87 BTC and 19,644 ETH into its spot ETF custodian. These movements are likely linked to inflows into the iShares Bitcoin Trust and iShares Ethereum Trust. The firm's activity highlights the growing integration of crypto into traditional finance.

In contrast, a major Ethereum long position collapsed on Hyperliquid, wiping out nearly $250 million in profit for the trader known as the Hyperunit whale. The trader, linked to Garrett Jin, closed the position after Ether dropped about 10% in a single day. The event underscores the risks of leveraged positions in volatile markets.

U.S. spot Bitcoin ETF holders are currently down about 8.5% from their average cost basis. The average purchase price for ETF buyers since 2024 stands at $90.2K, while BTC is currently trading at $82.3K. This drawdown highlights the exposure of institutional investors to Bitcoin's recent volatility.

What Are Analysts Watching Next?

Analysts are closely watching Bitcoin's ability to reclaim key support levels. A sustained move below $84.5K could invalidate the broader bullish market structure. This level represents the combined average purchase price for Strategy and spot BTC ETFs. If BTC stabilizes at this level, it could signal the start of a recovery.

The market is also monitoring BlackRock's new iShares Bitcoin Premium Income ETF. The product aims to generate option premium by systematically selling calls on its own spot ETF, IBIT. The strategy could add mechanical volatility to the market and compress the premiums available to option sellers.

U.S. Treasury issuance is another factor affecting liquidity and risk assets. The increase in T-bill settlements has raised overnight funding rates, tightening liquidity conditions. This has created an unfavorable environment for risk assets, including cryptocurrencies. The coming weeks may see further liquidity drains, potentially impacting market stability.

The potential for a Bitcoin short squeeze remains a focal point for traders and investors. A move toward $92,000 could trigger large-scale liquidations, forcing short sellers to cover their positions. This dynamic has occurred in previous cycles, often leading to sharp price rebounds. Analysts will be watching for signs of buying momentum at key levels.