Written by: Blockchain Knight
Bitcoin has taken a significant hit in this wave of decline, but the short sellers have also pushed themselves into an awkward position.
With ETF funds continuously flowing out, miners dumping coins onto exchanges, and short-term players capitulating, these three forces exerted simultaneous pressure, pushing the price down to around $63,000.
It fell 13% over the past week and 21% over the past month, nearly halving from its all-time high.
Interestingly, the shorts got overly excited during this decline. The current short-to-long ratio in the market is as high as 8-to-1, with nearly a hundred billion dollars in short positions piled up overhead. What does this mean?
If the selling pressure stops just for a moment, even a brief pause, those betting on a decline will be forced to buy back to cover their positions, triggering a mechanical short squeeze.
A similar structure appeared in November 2022, and Bitcoin subsequently rose by 24% within two weeks.
Of course, the reasons for the sell-off are substantial. Spot ETFs have been experiencing continuous outflows, losing $5.4 billion over 20 days, setting a short-term record.
Short-term holders transferred 53,000 bitcoins at a loss directly to exchanges within a single day. Miners sent 24,000 bitcoins to Binance (BN), a half-year high.
Meanwhile, AI-related tech stocks remain highly attractive for capital. The capital market has poured $400 billion into AI infrastructure over the past six months. Institutions are rebalancing, pulling funds from Bitcoin ETFs to chase big trends like SpaceX and Anthropic.
On the other hand, data shows veterans are also buying the dip. Long-term holders have accumulated an additional 200,000 bitcoins over the past month, bringing their total holdings close to a historical peak.
Institutions and mining companies have absorbed 1.24 million bitcoins since 2023, roughly equivalent to the total amount held by Satoshi Nakamoto. Yet the price remains suppressed, indicating that selling pressure is indeed strong, but buyers are genuinely stepping in.
The key now lies in two things. One is the zone between $67,000 and $70,000—this was the 2021 peak and the 2024 breakout level. A swift recovery above this zone would suggest this was merely a leverage flush-out; failure to reclaim it would test levels around $60,000 or even $55,000.
The other is the flow of ETF funds. The marginal buyer for Bitcoin now is the ETF channel. If capital continues to flow to new targets like AI and SpaceX, Bitcoin will struggle to take off alone.
The market is clearly diverging: the S&P 500 continues to hit new highs driven by AI, while Bitcoin is taking a beating on its own. DeFi hasn't helped either, with the total value locked dropping from $173 billion to $73.9 billion. The engine of retail speculation has basically stalled.
If Bitcoin can establish a bottom in the $60,000 to $58,000 region, ETF outflows may persist for a while, AI will continue to attract capital, and the price will repeatedly test support. A crash is unlikely, but the rebound will be painfully slow.
There's also a lower-probability scenario where fund flows suddenly reverse, Bitcoin recaptures $70,000 with significant volume, short sellers are forced to cover in a stampede, and the price quickly rebounds above $76,000.
It must be said that the current spot selling pressure is real. However, short positions have become quite crowded. Who wins in the short term depends on when the selling pauses. Even a mere pause will cause this compressed spring to snap back.
But there's another issue worth caution: Can US stocks remain perpetrally bullish? If the US stock market experiences a temporary pullback, how will Bitcoin react? Will it once again miss the rally but be quick to join the sell-off?
