Why Did Your Portfolio Pump to Start the Week? Thank the Shorts!

On Monday, the crypto markets experienced a significant rally, with Bitcoin soaring above $66K for the first time since September 27th. This surge appears to have been aided by a wave of short liquidations, which pushed the price of Bitcoin (and all of crypto along with it) upwards, exciting the crowd. As traders with short positions were forced to close out (either voluntarily or through margin calls), it resulted in a rapid price increase, sparking even more upward momentum.

Beginning at 15:35 UTC Monday, Bitcoin jumped +6.9% in market value during an 8 hour stretch. And unsurprisingly, this resulted in Bitcoin trading volume hitting a 2-week high at its peak.

According to data from Santiment, DeFi liquidations for Bitcoin saw their second-highest spike in over three months during this rally. This is notable because the last time liquidations of this magnitude occurred, Bitcoin went on a 20-day, +29% price rally. If history is any indication, this could be a strong signal that further price increases are on the horizon. As we can see, in most previous instances where we saw major DeFi liquidations for BTC, a market bounce ensues.

The liquidations weren't just limited to DeFi, either. BitMEX also saw a wave of mild short liquidations, but these quickly evaporated as the price climbed throughout the day. Take a look at how Compound Liquidations (in USDC) spiked shortly before Ethereum's price began to take off. Using USDC as collateral, ETH was borrowed by one particular user that had a very low health factor due to ETH not spiking in the days prior.

The rise in Bitcoin's price has led to increasing optimism among traders, with many eyeing the possibility of a breakout toward the $70K mark. Monday, in fact, has seen the highest level of $70K-$75K level calls since the first week of August.

Open interest for Bitcoin continues to rise as the price rallies, indicating that much of the levels of open interest have not been related to shorts. This metric, which tracks the total value of outstanding derivative contracts, suggests that traders are increasingly bullish as they pile in more and more long positions. With Bitcoin’s price nearing key resistance levels, there will either start being an even further lopsided level of longs vs. shorts, or a healthy battleground between long and short traders that typically allows for normal (and bullish) market growth.

As Bitcoin is beginning to seriously tease a return to $70K, it's likely we'll start seeing dramatic changes in funding rates, particularly on exchanges like Binance and BitMEX. These funding rates represent the cost of holding long or short positions in perpetual futures contracts and often shift dramatically when there is a strong directional move like we're seeing now.

For traders watching these movements, the increasing open interest combined with the liquidations should serve as a potential indicator of further volatility ahead. Bitcoin's all-time high of $70K set on March 14th could be within striking distance if momentum continues in the coming days.

In other reports, @RealSniperClub on X reported that there were over $100M in total short liquidations, with just over half of them being related to Bitcoin:

And @cryptomacro14 noted in even more massive 24-hour cycle number of short liquidations when crypto was peaking its bullish movement:

There were also some mild increases in Tether moving on to exchanges as the rally was commencing earlier Monday. Unlike when Bitcoin moves to exchanges (which is often a worrisome signal), a healthy dose of stablecoins being injected into exchanges can often be just the dry powder and fresh money needed to continue or boost a sustained rally.

Santiment will be monitoring all of these metrics closely, as they can provide insights into whether Bitcoin's rally will sustain or cool off after this latest bout of liquidations. Stay tuned for more updates as the battle between bulls and bears intensifies. If you are bullish on crypto, you will be rooting for this scenario, rather than a potential unanimous crowd voice talking about "lambo" colors, and asking "wen moon".

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Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.