Short Squeeze Hits Top 500 Cryptos as Traders Unwind Bearish Bets

Bitcoin, Ethereum, and XRP experienced a pullback from recent highs on Thursday as traders unwound bearish bets amid a short squeeze in the top 500 cryptocurrencies. Despite the correction, ETF inflows remain robust, signaling growing institutional interest in the digital asset class. Bitcoin (BTC) traded above $96,000 at the time of writing, while Ethereum (ETH) and XRP held support levels as profit-taking activity increased.

Bitcoin spot ETFs extended their inflow streak for the third consecutive day, drawing $844 million on Wednesday. This brings cumulative inflows to $58.12 billion and net assets to $128 billion, indicating renewed investor confidence. The inflows have outpaced previous records, with BlackRock's IBIT and Fidelity's FBTC leading the charge.

Ethereum spot ETFs also saw a surge in inflows, adding $175 million on Wednesday and bringing total inflows to $12.74 billion. This trend suggests that Ethereum may be poised for a further price increase if market sentiment continues to improve.

Why Did This Happen?

The surge in ETF inflows follows weeks of mild flows and deteriorating sentiment in the crypto market. Institutional investors appear to be aggressively reallocating capital after a period of year-end caution. This shift is attributed to improved regulatory clarity and renewed interest in crypto from major asset managers such as BlackRock.

ETF inflows represent a structural tailwind for crypto prices, according to Vincent Liu, CIO of Kronos Research. The increased demand is likely to provide further support to the broader crypto market, which has seen significant volatility in recent months.

How Did Markets Respond?

Bitcoin's price correction from recent highs has drawn attention to technical indicators. The Relative Strength Index (RSI) has retraced to 68 on the daily chart, suggesting that bullish momentum is fading. The 100-day Exponential Moving Average (EMA) at $96,032 is expected to absorb potential selling from profit-taking.

Ethereum, meanwhile, holds above $3,300 and is supported by a strong inflow trend in its spot ETFs. XRP is testing support at $2.10, but ETF flows remain steady, with only one outflow recorded since its launch.

What Are Analysts Watching Next?

Market observers are closely monitoring whether the inflow trend continues and whether this will translate into sustained price increases. Nick Rick of LVRG Research emphasized that sustained inflows into crypto ETFs could drive long-term price appreciation, supported by regulatory and institutional developments.

BlackRock, the largest bitcoin ETF in terms of net assets, reported $648 million in inflows on Wednesday. The firm's fourth-quarter profit rose to $2.18 billion, driven by ETF inflows and index fund demand. This underlines the growing role of ETFs in shaping the crypto landscape.

Investors are advised to monitor further price action as well as regulatory updates. The crypto market remains subject to high volatility and external factors such as regulatory and geopolitical events. Analysts suggest a cautious approach to short-term trading while maintaining a long-term view on the potential of crypto ETFs to drive market growth.