One of the most captivating aspects is the dynamics of Bitcoin (BTC) price cycles. In a recent observation, Ki Young Ju, the founder and CEO of blockchain analytics platform CryptoQuant, noted a striking difference between the current Bitcoin cycle and the previous one.
Long Squeezes vs. Short Squeezes
According to Young Ju, the last Bitcoin cycle saw several long squeezes, where the price of BTC declined, forcing long position holders to liquidate their assets to prevent further losses, accelerating the price decline. Specifically, he identified four long squeezes at the $55,000 price level.
In contrast, the current Bitcoin cycle has witnessed a different pattern. Instead of long squeezes, Young Ju observed two short squeezes around the $66,000 price point. A short squeeze occurs when the price of an asset increases, forcing short sellers to buy back their positions to prevent losses, driving the price even higher.
The Long/Short Squeeze Ratio
The CryptoQuant CEO emphasized that the long/short squeeze ratio is a critical indicator of potential cascading liquidation events. This ratio, calculated as the ratio of hourly liquidation volume to the total taker volume, helps assess the market’s susceptibility to rapid price movements due to forced liquidations.
“A high long/short squeeze ratio increases the risk of cascading liquidations. This cycle hasn’t had a long squeeze yet.”
This cycle hasn't had a long squeeze yet.
Long/short squeeze ratio can indicate a cascade liquidation event when high. (= hourly liquidation vol / total taker vol)
This year, #Bitcoin had two short squeezes at $66K. In the last cycle, there were four long squeezes at $55K. pic.twitter.com/bDtaTLphRl
— Ki Young Ju (@ki_young_ju) July 9, 2024
Implications and Interpretations
The absence of long squeezes in the current Bitcoin cycle, coupled with the presence of short squeezes, suggests a stronger demand for BTC at higher price levels. However, Young Ju cautioned against any bullish or bearish interpretations, stating that the data can be viewed from different perspectives:
- Some may see the $55,000 price level as a support due to the four long squeezes observed in the last cycle.
- Others may interpret the lack of a long squeeze as an indication that the market has not yet reached its bottom.
Current Bitcoin Price and Market Dynamics
At the time of writing, Bitcoin is trading at around $59,000, having fallen 15% in the last month. The digital asset’s price dropped as low as $53,000 after the German government began selling its BTC holdings. Additionally, the defunct crypto exchange Mt. Gox has initiated repayments to creditors, with 47,229 BTC already distributed and 94,771 BTC (roughly $5.6 billion) yet to be transferred.
Despite the recent price fluctuations, Bitcoin has shown some resilience, rising 2.70% in the past 24 hours and attempting to reclaim the $60,000 level. However, the leading cryptocurrency remains 20% down from its all-time high of $73,000 reached in March.
As the cryptocurrency market continues to evolve, the analysis of Bitcoin’s price cycles and the dynamics of long and short squeezes provide valuable insights into the underlying market forces and investor sentiment. Staying informed and vigilant remains crucial for navigating the ever-changing landscape of the digital asset ecosystem.