Bitcoin Price Stabilizes After Epic Short-Squeeze

The value of bitcoin (BTC) showcased renewed stability on Thursday, as traders continued to search for direction following a volatile start to the week that knocked the leading digital currency out of the $8,000-$9,000 range. According to cryptocurrency analyst Willy Woo, the months-long melt-up in prices was largely due to an institutional short-squeeze that has run its natural course.

BTC/USD Update

Bitcoin traded within a very narrow range on Thursday, with prices bouncing between $7,743 and $7,878 on Bitstamp. At the time of writing, the BTC/USD exchange rate was valued at $7,820, up 0.4% on the day.

The leading digital currency is supported at the 30-day exponential moving average (EMA), a level that has provided comfort since the bull market began several months ago. A steep pullback would likely occur if price action dips below this level with any velocity.

Bitcoin Price
Bitcoin (BTC/USD) continues to find support at the 30-day EMA. | Source: TradingView.

At current values, bitcoin has a total market capitalization of $140 billion. It peaked around $160 billion last month.

Bitcoin’s dominance rate has steadily declined since early last month. At last check, 55.7% of the cryptocurrency market capitalization was devoted to bitcoin. This figure was as high as 60.5% earlier this year.

After consecutive weekly gains, bitcoin is tracking large percentage losses over the past seven days. The price is down 10% over that stretch. That’s still lower than coins ranked 2-6 on CoinMarketCap.

Short-Squeeze Rally

Cryptocurrency analyst Willy Woo isn’t convinced that the bitcoin rally was driven by a “true organic bull market,” but rather by hedge funds short-squeezing their competition.

In finance, a short-squeeze takes place when the value of an asset rises sharply, forcing a large number of short sellers to close their position. When this occurs, price action goes even higher.

Hedge funds and other large bitcoin holders recognized that most traders were betting against the BTC price, so they purchased a large sum of the digital currency to force their competition to relinquish their positions. That liquidation appears to have taken place in the $8,000-$9,000 range, according to Woo, who says the “market switched from short to majority long.” This move “puts a cap on the profitability of short squeezing.”

At this stage, Woo is anticipating that exchange-based volumes will diminish significantly, leading to a “proper retrace” of the bitcoin price. Only then will real investor flows drive the bull market.

Woo’s forecast essentially calls for a sharp drop in bitcoin’s price, which mirrors Hacked’s recent assessment of the market. Even during bull markets, bitcoin experiences several major pullbacks to the tune of 30% or more. Investors shouldn’t be too alarmed if and when this does occur. After all, bitcoin appreciated more than 170% peak-to-trough between December and May.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. Chart via TradingView.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi