Key Points
- Bitcoin recorded its largest short liquidation of the year, preceding a market rally.
- Despite high liquidity inflow, Bitcoin could face significant outflows due to overbought market conditions.
Bitcoin has shown strong bullish tendencies, with a 3.19% rise in the past 24 hours, setting a new weekly high of $107,106. This indicates the potential for Bitcoin to reach a new all-time high, bolstered by liquidity inflows from market investors. However, the asset is facing a significant challenge.
Largest Short Liquidation on Record
In the past 24 hours, Bitcoin on Binance experienced its largest short liquidation yet. Short liquidation is a process that forcibly closes the positions of traders betting on a price decline when the price trades higher. This event was triggered by Bitcoin’s sharp rise from $103,195 to $105,535, a 3.48% increase. This resulted in short traders losing $66.3 million within this period.
Short liquidation often paves the way for further market rallies as it suggests potential new capital inflow into the market. The liquidity inflow into the market is believed to have come from traditional institutions investing in Bitcoin. According to a recent report, 10 Bitcoin spot exchange-traded funds (ETFs) saw a combined net inflow of 2,103 Bitcoins, valued at $210.67 million.
Potential Hurdles Ahead
While Bitcoin is showing upward momentum, not all market sentiments align with this trend. The Binary Coin Days Destroyed (CDD), a metric tracking when investors last moved their Bitcoin to determine whether they’re selling or buying, suggests the former. The CDD currently reads 1, implying that investors might be moving their tokens to sell.
Further analysis indicates that investors are likely moving their Bitcoin because new market data suggests it is overbought. An asset is considered overbought when its current market price significantly exceeds its intrinsic value. After reaching this level, the asset typically trends lower. This information suggests that investors are likely capitalizing on their profits to avoid future losses, allowing them to re-enter at a more favorable level ahead of another rally.
