Bitcoin (BTC) witnessed a staggering 15% drop from its January 11 peak to the lows on January 12, sparking a bearish sentiment among traders. This sudden shift could trigger a short squeeze, propelling Bitcoin's price to new heights.
Ethereum (ETH) didn't escape unscathed either, experiencing a nearly 10% loss from its January 11 high to the subsequent day's low.
Traders strategically create upward liquidity pools by initiating short positions, potentially becoming targets for market makers. If the cryptocurrency hits these pools, positions are closed or liquidated, causing a rapid price surge – a phenomenon known as a short squeeze.
On January 16, Finbold referred to CoinGlass's liquidation heatmaps to assess the risks of an impending short-squeeze event. Bitcoin holds a substantial liquidity pool valued at $575.95 million at $49,281 within the weekly timeframe. Notably, a significant amount of short positions awaits liquidation at around $42,800, raising concerns about a potential short squeeze.
Erasing this available liquidity could result in a 15% surge for Bitcoin, making it an attractive target for bullish investors. The absence of substantial downside liquidity further supports the possibility of a price pump in the coming weeks.
Meanwhile, Ethereum presents a more balanced scenario with distributed liquidity downwards. However, a critical concentration of $40 million in liquidations awaits a short squeeze at the $2,700 price point. Breaking positions at $2,560 to $2,570 is deemed crucial for initiating a liquidation event.
Investors buying Ethereum at current prices (slightly above $2,500) stand to gain over 8% if the highest target is reached. Nonetheless, it's vital to acknowledge that concentrated liquidity doesn't guarantee actual liquidations, as demand plays a pivotal role in driving prices upward – a prerequisite for triggering a short squeeze.
The cryptocurrency market remains unpredictable, and sudden changes could transpire within hours or even minutes.
Both XRP and BNB Chain present short-squeeze possibilities, with XRP having lower liquidity and BNB being more likely to experience a short squeeze due to its higher available liquidity.
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