Why Bitcoin’s $80,000 rally just flipped from short squeeze to long squeeze

Bitcoin's brief pullback below $78,000 triggered more than $300 million in crypto liquidations as traders took profits after a sharp $80,000 rally driven by Treasury developments, ETF inflows, and a squeeze on bearish positions.

Data from CryptoSlate shows that the largest cryptocurrency fell as low as $77,870 during the last 24 hours before recovering above $79,000 as of press time. The retreat spread across major cryptocurrencies, with XRP falling 4% to $1.43 and Solana sliding 3% to $97 after trading above $101.

Ethereum dropped to about $2,467, while Zcash declined 7% to $789. Cardano and Dogecoin each fell roughly 5%, with ADA trading around $0.20.

CoinGlass data showed that this price action led to about 80,000 liquidations over 24 hours, with losses totaling $324.4 million. Long positions accounted for roughly $270 million of the wipeout, marking a sharp reversal from last week's rally when bearish traders absorbed most of the forced selling.

The largest single liquidation was an $11.91 million Bitcoin position on Binance. Bitcoin longs lost about $109 million, while Ethereum longs accounted for roughly $70 million. XRP and Zcash long liquidations reached about $16 million and $11 million, respectively.

The shift toward long liquidations shows leverage has quickly rebuilt on the bullish side after last week's surge forced bearish traders out of the market.

Crypto market maker Wintermute said short traders represented roughly 92% of liquidations during the previous advance, when Bitcoin broke through the top of its trading range, and crypto investment products attracted $2.6 billion.

The market maker turned constructive after ETF flows stabilized and Bitcoin held its range floor, but warned that the speed of the positioning shift resembled squeeze behavior. Once forced short covering runs its course, additional gains depend more heavily on buyers willing to enter at higher prices.

That risk has grown as traders increasingly position for further upside.

Alphractal CEO Joao Wedson said the probability of another Bitcoin long squeeze was rising as long positions became more concentrated and funding rates remained positive across several exchanges.

Positive funding generally means traders holding leveraged long positions are paying shorts to maintain their exposure, a sign that futures markets are tilted toward higher prices. A rapid decline can force some of those positions to close, adding selling pressure to the initial move.

Wednesday's decline delivered an early version of that process. Bitcoin's recovery toward $79,000, however, has so far prevented the liquidation wave from developing into a deeper reversal.

With some of the short-covering fuel exhausted, the next phase of the rally increasingly depends on whether spot and ETF buyers continue absorbing profit-taking.

US spot Bitcoin ETFs entered the pullback after attracting more than $2.5 billion across a seven-session inflow streak, helping Bitcoin climb from roughly $62,000 earlier this month to above $80,000.

Wintermute said ETF flows now carry the burden of confirming that the advance has a more durable spot-market foundation. The firm would turn cautious if Bitcoin ETFs record a negative weekly flow while Bitcoin closes back inside its former range below $67,000.

Other demand indicators continue to support the bullish side of that argument.

CryptoQuant data showed spot and futures demand have been rising together, with total Bitcoin demand increasing by about 170,000 BTC over the past 30 days.

That synchronized growth has historically accompanied some of Bitcoin's stronger advances, though it also leaves the market vulnerable when futures exposure expands faster than spot buying.

Glassnode data also showed monthly capital flows have returned to positive territory. The analytics firm identified Bitcoin's short-term holder cost basis, currently near $70,000, as an important level during any deeper retracement.

A sustained influx of buyers above that level would allow recent holders to remain in profit and provide support during declines. Losing it would put a larger share of recent buyers underwater and raise the risk that profit-taking develops into broader selling.

For now, Bitcoin remains well above that threshold despite its retreat from this week's highs.

Meanwhile, the current pullback arrives just as a series of macro events threatens to test a rally initially accelerated by falling Treasury yields and expectations for greater liquidity.

The US Bureau of Economic Analysis is scheduled to release its second estimate of second-quarter GDP and July personal income and spending data on Wednesday, including the Federal Reserve's preferred PCE inflation gauge.

Inflation has become particularly important after higher energy prices and tariffs complicated the outlook for monetary policy. A stronger-than-expected core PCE reading could revive pressure on Treasury yields and risk assets after falling yields helped fuel Bitcoin's recent advance.

Nvidia will report fiscal second-quarter results later Wednesday, with results expected around 1:20 p.m. Pacific time before a conference call at 2 p.m. The chipmaker's outlook could influence broader risk appetite as artificial intelligence spending has become an increasingly important driver of equity markets and corporate borrowing.

Attention then turns to Federal Reserve Chair Kevin Warsh, who is scheduled to deliver keynote remarks Friday at the Jackson Hole Economic Policy Symposium. The gathering runs Aug. 27-29 under the theme “Financial Innovation: Implications for Payments and Policy.”

Warsh has offered little policy guidance since the Fed's July 28-29 meeting, leaving markets sensitive to any indication of how the central bank views inflation, long-term yields, and its next interest-rate decision.

Those events come before the Treasury's expanded long-term bond buybacks begin Sept. 9, followed by a planned CLARITY Act cloture vote on Sept. 15 and the Fed's next policy decision on Sept. 16.

Bitcoin's rebound from Wednesday's low suggests buyers have so far treated the decline as a retracement. Whether they continue to do so will determine whether the move below $80,000 clears excess leverage or marks the beginning of a broader unwind.

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