Author: Glassnode
Compiled by: AididiaoJP, Foresight News
Key Takeaways
- Record-breaking short liquidations triggered the rebound, with Bitcoin facing a test at the $81,000 to $86,000 supply concentration zone.
- ETFs saw a single-week net inflow of $2.23 billion, with accumulation across all market participant groups, providing clear support from capital flows.
- After deleveraging, the market is undergoing turnover; the $81,000-$86,000 range has become a key resistance band overhead.
Introduction
A short squeeze of unprecedented scale ignited a rebound of approximately 26% from the lows in mid-August. Unlike past rallies driven solely by leverage, this surge has been supported by substantial buying pressure: US spot ETFs recorded their strongest weekly inflow of the year, Bitcoin continued to see net outflows from exchanges, and all wallet size groups on-chain showed synchronized accumulation. The key to whether the rally can extend to the January highs now depends on whether the $81,000 to $86,000 supply concentration zone can be decisively breached.
The Liquidation Storm: The Largest Short Squeeze in History Ignites the Rally
Record Daily Short Liquidations
In US dollar terms, August 19, 2026, saw the largest single-day short liquidation on record since data became available in 2019. During the entire squeeze window, short liquidations accounted for 85% of total liquidations. It should be noted that our data covers major centralized exchanges but excludes Hyperliquid, so the actual total liquidation value is higher than our statistics.
The liquidation heatmap clearly shows how price action consumed this "fuel." During the rebound, simulated liquidation clusters along the price path were triggered one by one, with approximately 86% of the liquidation positions digested along the way. The remainder is distributed at both ends: dense short liquidation orders cluster in the $82,000-$86,000 range above, while residual long liquidation positions remain in the $60,500-$62,400 region below.
Significant Deleveraging
This squeeze effectively cleared leverage from the market it traversed. Measured in Bitcoin terms, futures open interest contracted by 11% during the window—the expansion in USD nominal size was entirely due to price appreciation. This means that the liquidated short positions were not quickly replaced by new contracts.
Perpetual swap funding rates corroborate this point. Throughout the rally, funding rates largely fluctuated around the neutral baseline, occasionally turning negative. This indicates the rebound was not driven by new longs chasing the price, but rather a concentrated release of stop-loss positions. A renewed expansion in Bitcoin-denominated open interest coupled with rising funding rates would be the first warning sign of renewed leverage inflow.
Capital Flow Validation: Real Money Backs the Rebound
ETF Channel Reactivated
US spot Bitcoin ETFs recorded a net inflow of $2.23 billion during the squeeze window, with no outflow days, marking the strongest weekly inflow of the year. The single-day maximum subscription volume during this period was the highest since January 14, 2026. The price also reclaimed the short-term holder cost basis during the rally.
Trading activity recovered somewhat but remains far from historical peaks: the average daily ETF trading volume during the squeeze week was approximately $2.4 billion, roughly half the level seen during the January-February peak and about one-third lower than August last year.
On-Chain Supply Shifts Up the Size Ladder
Since the low on June 30, 2026, entities holding 1,000-10,000 BTC have cumulatively reduced their holdings by approximately 50,500 BTC, while the largest group (over 100,000 BTC, primarily consisting of exchanges, custodians, and ETF wrapper products) absorbed about 59,100 BTC in the same period. Capital is shifting up the size ladder from small and medium-sized whales towards large custodial institutions.
This trend intensified during the squeeze week: the custodial group added roughly 31,500 BTC during the window, a magnitude similar to the net ETF purchases for the week (though not a one-to-one correspondence). BTC sold off by pressured whale wallets appeared in institutional custodial channels at a comparable scale.
Synchronous Accumulation Across All Market Groups
The breadth of buying activity confirms the authenticity of the capital inflow. The 30-day Accumulation Trend Score shows all six wallet size groups at or above the neutral threshold of 0.5. This state has persisted for 20 days since August 5, marking the longest period of synchronized accumulation across all groups since the 22-day record in late 2024.
The squeeze day was primarily driven by large wallet accumulation, while smaller groups had been gradually accumulating throughout August. If any group's score falls back below 0.5, it would be the first sign of a crack in market breadth, indicating that the buying supporting this rebound is narrowing.
Rally Structure: Cycle Positioning and Cross-Asset Performance
Cycle Indicators Exit Cooling Zone
The Cycle Composite indicator (median of 45 on-chain cycle metrics) has rebounded to the neutral boundary of 40, after lingering in the "Cold" to "Cool" zones for seven months.
The five circular markers on the chart denote historically similar prolonged periods of low readings: 2014-2015, 2018-2019, 2020, 2022-2023, and the current cycle. Each corresponded to a low region within its respective cycle. This indicator does not predict the speed of the rebound but positions the current market in the early stages of the cycle, far from the elevated readings typical of prior peaks.
Rally Structure Shows "Top-Heavy" Characteristics
From a cross-asset perspective, the breadth of the rally is narrow. Over the past month, the average return for large-cap altcoins is approximately 20.6%, roughly in line with Bitcoin; while small-cap altcoins gained only about 6.0%. The smaller the market cap, the less capital inflow it received.
This is a typical structure for early-stage rallies—the most liquid assets are allocated first. If mid- and small-cap groups can catch up later, the rally will broaden. Until then, this remains a market led by large-cap assets, with Bitcoin at the forefront.
Significant Decoupling from US Stocks
This rally diverged from macro trends. During the squeeze window, Bitcoin rose about 25%, while the S&P 500 fell 1.7%. Their one-month rolling return correlation plunged to near zero. The negative correlation with the US dollar remained firm.
Similar rapid decouplings in 2025 reverted to the mean within weeks on two occasions, so a structural shift cannot yet be declared—the quarterly window correlation has also only just begun to trend downward. However, a rally completed against a backdrop of stock market weakness is clearly not a "stock beta" move; its true driver is capital inflow specific to the crypto market.
Overhead Resistance: $81,000 - $86,000 Supply Concentration Zone
Cost Basis: Floor and Ceiling
On-chain cost distribution has sandwiched the price. Below, buyers who entered at the June to August bottom hold the $62,000-$65,000 range, nearly two-thirds of whom are short-term holders—recent buyers inclined to defend their cost basis. Above, the first major supply structure lies at $83,000-$86,000, almost entirely composed of long-term holders who experienced the full drawdown.
The current spot price resides in the gap. The short-term holder cost basis has recovered to around $70,000 (below the price). A move towards $83,000-$86,000 will test whether long-term holders choose to sell near their breakeven point.
Sell-Side Orders Re-cluster Above
As the price rose, sell orders reappeared on the order book above. Static sell orders in the +100 to +1000 basis point range from the mid-price grew by approximately 41% in the final five days of the window; meanwhile, visible buy orders across the entire order book thinned by about 32% in the last seven days. Static orders can be canceled instantly, so the order book reflects areas where sellers are willing to offer—currently, they are inclined to place sell orders above.
The re-clustered sell orders point to the same zone as multiple independent indicators: the first self-custodied cost basis plateau begins at $80,800; market maker gamma turns negative at $82,300; existing liquidation orders extend to $86,000; and the patient supply wall fills the $83,000-$86,000 range. All the overhead structures we track currently concentrate between $81,000 and $86,000—this is the real test for the rally's sustainability.
Options Market Pricing: Steady Expectations
The options market suggests patient expectations. The two most concentrated upcoming expiries—this Friday with approximately $10.4 billion notional value, and the September quarterly expiry with about $13.7 billion—both have max pain levels significantly below the spot price. Max pain (the strike price where the maximum number of options expire worthless) is at $69,000 and $70,000 respectively, with spot around $79,000. Below are dense put option clusters; above are call option order zones.
Forward distributions have flattened. For the expiry up to September 25, 2026, roughly 70% of strike prices imply outcomes within the $69,000 to $89,700 range, with the median only a few hundred dollars above spot. The options market's baseline scenario is for steady consolidation within the current supply wall: it neither expects a break above the $86,000 zone nor a return to the floor below.
Conclusion
The largest short liquidation on record in our data source initiated this rebound; sustained ETF inflows, active on-chain buying, and net exchange outflows provided the capital needed for continuation; and cycle indicators still place the market in early stages. This is a classic profile of a cyclical rebound.
Confirmation will come from above: a decisive close above $83,300, coupled with sustained ETF inflows, would indicate the supply wall is being digested, not respected. Signs of weakness would first appear with a loss of the $70,000 short-term holder cost basis, followed by the $62,000-$65,000 floor zone defended by recent buyers. A return to the $62,900 squeeze starting point would completely erase the entire move.
