23.08.202411:03 Forex Analysis & Reviews: Bitcoin is Preparing for a Short Squeeze

The rapid rally of BTC/USD from January to March turned Bitcoin into an idol of millions, with its prospects looking bullish, especially in light of the April halving and the regulators' improved attitude towards the crypto industry ahead of the U.S. presidential elections. However, reality has proven otherwise.

In the past, halving events gave a new impetus to BTC/USD and were associated with 4-year cycles in cryptocurrency markets. Essentially, halving limits supply, which theoretically should lead to price increases. However, given that most Bitcoins have already been issued, the value of digital assets is influenced by other factors—global risk appetite, an increase in the money supply, or the U.S. government's intention to sell confiscated tokens worth $12 billion.

The risks of a growing supply of cryptocurrency are leading to its obscurity. Bitcoin is underperforming compared to many assets—stocks, bonds, and even gold.

Bitcoin's Dynamics Compared to Other Financial Market Assets

The decline in investor interest is evidenced by the drop in the so-called funding rate of perpetual Bitcoin futures on Binance to its lowest levels since 2022.

However, markets develop cyclically. A downturn is followed by an upturn, and rallies end with sharp sell-offs. According to K33, the leader in the cryptocurrency sector is on the brink of a short squeeze. The combination of negative funding rates for perpetual swaps and a sharp increase in open interest indicates that a storm is about to hit the crypto market. This has happened repeatedly in history, where speculators' closing of short positions fuels the BTC/USD rally.

Bitcoin Dynamics and Short Squeezes

In my opinion, given the increase in global risk appetite, the dollar's weakness, and the decline in U.S. Treasury yields due to expectations of an imminent start to monetary expansion by the Federal Reserve, Bitcoin should not remain in a state of obscurity for too long. This market environment is favorable for cryptocurrencies, and sooner or later, Bitcoin will awaken from its long slumber. We need to be prepared for this moment.

On the other hand, U.S. stock indices cannot rise indefinitely. Economic slowdowns and growing recession risks will pressure the S&P 500 and global risk appetite, creating challenges for BTC/USD. The desire of Republicans and Democrats in the U.S. to adopt a more favorable stance towards the crypto industry seems to be mere populism. In the U.S., there are millions of Bitcoin and similar cryptocurrency enthusiasts, and presidential candidates want to capture their votes.

Technically, on the daily chart, BTC/USD shows a combination of two reversal patterns – the Wolfe Wave and 1-2-3. A decisive breakout above the resistance at 62,650 is required to activate the latter model. This would serve as a basis for buying.