Bitcoin {BTC} surged to a new record high of over $110,000 on Thursday, liquidating around $500 million worth of derivative positions following, but some traders do not believe in the bullish sentiment.
Trading volume surged 74% in the past 24 hours as traders tried to position themselves; however, most of these traders are opting to short -- or bet on the price of Bitcoin falling.
Coinalyze data shows that the long/short ratio is at its lowest since September 2022, during the middle of the cryptocurrency winter.
This trend began on April 21 when traders actively shorted as prices surpassed $85,000, seemingly thinking that Bitcoin had formed a cycle peak and any following movement would also form a double top.
However, despite the lack of participation from retail investors, Bitcoin continues to rise, surpassing the resistance levels of $97,000 and $105,000 on its way.
This move may be due to several factors; the recovery of U.S. stocks as concerns over tariffs eased, the increase in institutional activity on exchanges like CME, and importantly, the strong rise in short positions to push prices higher.
Although these short positions can be seen as a bearish trend in terms of market structure, in reality, they ignite the upward flame as they provide optimistic traders with areas to target and execute stop-loss hunts as we saw earlier this week.
Shorting the record highs of an asset is not necessarily a bad strategy; a trader will often choose to enter a short position at resistance, whether technical or psychological, and apply a stop-loss at a level where the short trade thesis will be invalidated.
In this case, if a trader shorts $105,000 on each test of BTC in that area, they could close their position at a three times profit at $102,000, meaning even if they get stopped out at $109,000, it would still be a profitable week.
Along with the continuous increase in short positions, we have seen open interest rise disproportionately with BTC. In the past 24 hours, BTC has risen 4.8% while open interest has increased 17% despite hundreds of millions being liquidated.
This shows that the record-breaking level is due to leverage and may be less sustainable compared to the initial rise above $100,000 in December and January.
It remains to be seen whether interest in short positions will continue to rise if BTC continues its strong upward momentum above $111,000, but there is certainly a minefield of short positions to exploit if more ammunition is needed.
