Bitcoin: Liquidations Suggest an Upswing

There is data suggesting that the price of Bitcoin might rise again. 

These are potential liquidations of leveraged positions. 

Today, in fact, approximately $4.34 billion in short position liquidations are possible in the event of a 10% price increase, while there are only $2.35 billion in potential long position liquidations in the event of a 10% decrease. 

This imbalance is decidedly significant, and it suggests a higher probability of an upward movement rather than a decline. 

Forced Liquidations

In the futures market, it is possible to open long and short positions on margin. 

This means you can bet on the bull or bear movement of an asset’s price without needing to own or purchase it. 

However, these positions must be closed at some point, and since selling short (i.e., shorting) means borrowing assets to sell them, but with the obligation to eventually repurchase and return them, it is necessary to ensure having the capital to repurchase them (the same applies in reverse for long positions). 

To prevent the short seller from being unable to repurchase the assets they have borrowed, platforms that allow opening short (or long) positions forcibly proceed with the liquidation of positions just before the critical moment occurs. 

In other words, if a short position has accumulated a loss so significant that it is close to no longer allowing a buyback, it is immediately and forcibly closed by the platform with an automatic purchase at market price. 

In these cases, the main beneficiaries are the platforms themselves, which collect fees on transactions, but also those who have bet against the positions that are forcibly closed. 

The Current Imbalance

With approximately $4.34 billion in potential liquidations of short positions, in the event of a 10% increase in the price of Bitcoin, it’s easy to understand how much someone could profit. 

Moreover, with just over half of potential liquidations of long positions, the imbalance between possible gains from a 10% rise and those generated by a 10% drop is significantly important. 

If the price of Bitcoin were to rise by 10%, it would increase by approximately $6,800 at the current state, thus moving from the current $68,000 to over $75,000.

In such a case, many short positions (i.e., short sales) would be liquidated, resulting in significant gains for both the platforms managing them and those who bet against those short sales. 

Moreover, since forced liquidations of short positions involve automatic repurchasing, they would end up further increasing buying pressure, even if only temporarily, thereby helping the price to rise even more. 

It should not be forgotten that many long or short positions are also opened with leverage. In other words, those who do not have large capital can borrow capital from others to increase their position, even by ten or a hundred times. 

Since these loans all have a cost and must always be repaid, leverage increases the likelihood that long and short positions will be forcibly liquidated. 

The $75,000 Hypothesis

However, it is important to specify that the 10% mentioned earlier is an entirely arbitrary percentage. 

In fact, at this moment, Bitcoin faces a much stronger hurdle to overcome, which lies below the $75,000 threshold. 

The major resistance appears to be around $73,000, therefore it might be very difficult at this moment to climb back to $75,000.

However, if instead of considering a +10% or -10%, we consider a +7% or -7$, the situation changes slightly, but becomes much less difficult to predict. 

The fact is that there is a significant imbalance between short and long positions, while the choice of the percentage on which to base the calculations is arbitrary – and often the round number of 10% is chosen for these calculations. 

Bitcoin on the Rise?

The real question, however, is another one. 

Does the price of Bitcoin truly have the strength to rise again? 

The comparison between short and long positions would actually suggest yes, because to trigger the significant liquidations mentioned above, or even just a portion of them, a clear and rapid rise in the price of BTC would indeed be necessary. 

Currently, however, even just surpassing the $70,000 mark seems challenging in the short term, especially since the US markets are closed today due to a holiday.

However, should the price of Bitcoin manage to rise significantly above $71,000 between today and tomorrow, there do not appear to be major obstacles up to $73,000. 

However, it remains to be seen what could trigger a rise from the current $68,000 and change to $71,000, but there is time at least until tomorrow. 

Bitcoin on the Decline? 

Obviously, the markets think differently, as the vast majority of bets are on short positions, meaning bearish. 

It should be noted, however, that the so-called retail investors, meaning private investors/speculators with not particularly large capital, often make mistakes, while generally it is the whales who are right. 

4.34 billion dollars in total liquidations of short positions, in the event of a 10% price increase, are not exactly “whale” numbers, but rather retail, considering that, for example, on the BTCUSDT trading pair alone on Binance, daily volumes exceed 1.2 billion dollars, and on BlackRock’s ETF, they even surpass 2.6 billion. 

Moreover, it is crucial to clearly distinguish between short-term movements and those of medium or long-term, as the forced liquidations of leveraged long or short positions are strictly short-term movements, often independent of medium-term ones. 

Therefore, even if the medium-term trend remains bearish, a 7% rise to liquidate a portion of leveraged short positions cannot be ruled out.