Federal Reserve Signal Triggers $375M Crypto Short Squeeze

A dramatic short squeeze in crypto futures markets unfolded over the last 24 hours as a sharp price rebound triggered $375 million in liquidations, according to CoinDesk. The surge occurred after Federal Reserve Chair Jerome Powell hinted at a potential September rate cut during his Jackson Hole speech, sparking a rapid reversal in bearish positioning across major digital assets. Bitcoin and Ethereum, the largest cryptocurrencies by market capitalization, both experienced significant price swings that caught short sellers off guard, leading to a cascade of forced liquidations.

The sudden shift in sentiment was underscored by strong inflows into Ethereum, which outperformed Bitcoin in terms of market performance and investor confidence. Over the past week, Ethereum ETFs have attracted over $3 billion in fresh capital, with several institutional investors and treasury firms expanding their holdings. Meanwhile, Bitcoin faced a $1 billion outflow from ETFs, as traders shifted their focus toward Ethereum and other altcoins. This reallocation of capital was driven by expectations of a dovish Fed policy shift and continued optimism about Ethereum’s long-term growth potential.

On-chain data also pointed to a resurgence in spot and futures activity, particularly in the CME’s Ether futures market. Open interest in Ether futures hit a record $10 billion, indicating a growing appetite for institutional participation. The rapid increase in leverage and long positions has raised concerns among analysts about the potential for further volatility, especially in a market still sensitive to macroeconomic cues. Citi analysts noted that Ethereum’s robust on-chain metrics and surging spot ETF demand have helped fuel a new wave of bullish momentum.

The short squeeze came amid a broader correction in the crypto market, with Bitcoin dropping below $113,000 and Ethereum falling to $4.2K in previous sessions. However, the Fed’s dovish tone and a surge in speculative buying helped reverse this bearish trend. Analysts attributed the rapid recovery to a combination of market positioning, liquidity flows, and anticipation of a September rate cut. “The Fed’s messaging has clearly shifted the narrative,” said one strategist. “Investors are now pricing in a rate cut and are reallocating capital accordingly.”

Despite the recent rebound, the market remains vulnerable to sudden shifts in sentiment. Hawkish surprises from the Federal Reserve in previous meetings had triggered sharp selloffs, and traders continue to closely monitor inflation data and policy updates. The upcoming jobs report and subsequent Fed decision on September 17 could further shape market direction. “The market is still waiting for confirmation,” said a derivatives expert. “Until we see the full extent of the Fed’s policy stance, volatility is likely to remain a key theme.”

In summary, the crypto market experienced a significant short squeeze as traders anticipated a Fed rate cut, leading to $375 million in liquidations. Ethereum emerged as a major beneficiary of the shift in sentiment, attracting record inflows while Bitcoin faced outflows. The market’s response to macroeconomic signals underscores its deepening integration with traditional financial systems and highlights the importance of policy-driven positioning in digital asset markets.