Wintermute says Bitcoin’s push past $80,000 is a short squeeze, not a healthy rally amid stagnant US Iran negotiations

Bitcoin has crossed $80,000. For the first time since January. However, Wintermute, the algorithmic trading firm, believes this to be only a “short squeeze” and has warned that the move is driven by liquidations in the derivatives market, not genuine spot buying by traders.

This market report would mean the current price levels are very fragile and particularly unhealthy, as the rally is not considered a purely organic one.

Demand healthy, derivatives not

In a market report published on Monday, Wintermute said interest in Bitcoin futures grew by about $10 billion over the past month, climbing from $48 billion to $58 billion. Spot trading volume has, however, dropped to a two-year low, according to Binance News, citing data from NS3.AI.

This means that as Bitcoin approached $70,000, traders bought more shorts, betting the rally would stall and ultimately reverse. Unfortunately for them, the price broke higher, and these shorts ended up being liquidated, triggering a buying rush that pushed BTC above $80,000 and past its 200-day moving average to around $83,000.

As the rate of funding of perpetual futures still remains short of normal, there could still be another wave of forced liquidations, Wintermute has stated. This has led the firm to draw a clear line between the covering of liquidated shorts and actual conviction from buyers willing to hold spot Bitcoin.

“Without spot-driven demand, the rally is fragile and susceptible to a sharp reversal,” the firm said.

Wintermute optimistic long-term

Wintermute was more positive with the long-term outlook of BTC. Spot Bitcoin ETFs have attracted combined inflows of $623 million recently, with Morgan Stanley’s Bitcoin ETF alone pulling in $194 million in its first month without a single day of net outflows. The amount of Bitcoin held on crypto exchanges has also fallen to a seven-year low, a positive signal that longer-term holders are accumulating instead of looking to sell.

These factors are seen as optimistic and support the case for higher prices over the longer period of time, but they are not nearly enough to offset the short-term risk due to the current price increase being built on derivative trading changes.

What could go wrong

The firm has identified two important variables that could increase the pressure on BTC in the short term. Firstly, a negative U.S. Consumer Price Index reading could revive inflation concerns and lead to a downturn in crypto prices. The April CPI report, released later in the day, showed a 3.8% year-over-year increase, which was slightly above market forecasts, according to MEXC.

Secondly, the nomination process for Kevin Warsh as chairman of the Federal Reserve could add uncertainty around monetary policy and lead to market instability.

Wintermute has said a move to $85,000 is still possible, but the risk-to-reward of buying at current levels remains unattractive. Also, Bitcoin’s relative strength index is fast approaching overbought levels. If demand for BTC in spot-trading markets does not materialize once the initial short squeeze is over, Bitcoin prices could see some more red in the coming days.

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