Bitcoin sets up for market-wide short squeeze as price drops below $108K

The massive crash on October 10 that saw Bitcoin (BTC) touch $102,000 is almost being shadowed by a price correction a week later, with the liquidations chart showing a classic setup for a market short squeeze if the king coin crosses the $111,000 mark again.

Bitcoin fell below $108,000 during Tuesday’s US pre-market sessions, now consolidating around $107,700 after shedding 3.7% of its price in the last 24 hours. Traders are trying to figure out what to do with mixed signals, and this has caused funding rates to plummet into a territory where short bets are starting to pay longs.

According to analysts, there are $14 billion worth of cumulative short leveraged bets primed for liquidation if Bitcoin’s bearish trend flips and the coin ticks upwards to its all-time-high level of $124,000.

Short squeeze imminent if BTC revisits $110,000 option

Perpetual futures data shows funding rates have turned negative, signaling that short positions are starting to pay long holders once again. Per data from Coinglass, open BTC futures interest has slumped by about $20 billion since October 9, when BTC clocked its all-time-high value. 

Negative funding rates and decreasing short interest indicate an imbalance that can amplify sudden price reversals. Traders are now closely watching if Bitcoin can reclaim the $111,000 level, which analysts believe is the trigger point for the next squeeze.

Other analysts have compared the current scenario to January 2021, when the king coin surged from $30,000 to over $40,000 within days, catching bearish traders off guard. A squeeze also unfolded in the US spring of 2024, when Donald Trump’s presidential win caused a week-long rally that sent Bitcoin above $100,000 for the first time ever, liquidating millions in leveraged shorts.

On-chain analytics firm CryptoQuant’s Bitcoin Combined Market Index (BCMI), which aggregates several market health indicators, has retraced to the 0.5 neutral zone, the mid-point between overvaluation and undervaluation during Bitcoin’s market cycles.

In previous cycles seen in 2020 and early 2024, a retest of the 0.45 to 0.5 range meant the end of corrective phases and preceded new expansion legs. As explained by Woominkyu, it is a cooling period where speculative activity declines and long-term value metrics reset.

Currently, Bitcoin’s MVRV stands near 1.8, well below historical overvaluation levels above 3.0, while the SOPR is close to 1.02, balancing profit-taking and accumulation. 

“All components point to a structural mid-cycle correction, not a macro top,” Woominkyu said in his analysis. “If BCMI rebounds from 0.5 to 0.6, momentum could resume toward a new local high. But if it breaks below 0.45, extended consolidation may follow.”

The market is in disbelief, unsure what to do

Market watcher and CryptoQuant member Darkfost believes the asset could be entering what is called a “disbelief phase,” the psychological stage where prices begin to rise again, but investor confidence is low due to negative price corrections.

Bitcoin’s funding rates stayed negative at around -0.004% for six of the past seven days from persistent bearish positions taken by the market. The extended period of negative funding indicates that traders are still leaning short despite prices stabilizing above $107,000.

That said, exchange flows show that approximately 18,000 BTC have left exchanges in recent days, while around 16,000 BTC have flowed in. The mild net outflow suggests that accumulation is moderate, which also means the market is not confident about where BTC’s price will go.

Bitcoin bulls struggled to keep its price above $111,000, facing a pullback from bears that have turned the value into its new resistance level. They need to hold the $107,000 support zone, as a sustained break below that level could tip the selling pressure scale eastwards and prolong the consolidation phase.

Join Bybit now and claim a $50 bonus in minutes