Did Bitcoin Just Witness Its Largest Short Squeeze In History?

Read our Advertiser Disclosure.
Contributor, Benzinga
July 27, 2021

Investors were betting on Bitcoin to fall further, but instead, Bitcoin pushed higher. On Sunday, July 25th, Bitcoin surged from $36,000 to over $40,000 in a matter of minutes. The majority of this volume came from ByBit, but the price of Bitcoin hit $48,000 on Binance for a brief moment, causing lower-leveraged short positions to also be liquidated.

With bearish movement from Bitcoin over the past month, Bitcoin short futures were piling up at a record rate. After Bitcoin broke through it’s psychological support of $30,000 around July 20th, investors were calling for a $20,000 Bitcoin in the near future.

Instead, the opposite happened and those betting against Bitcoin were liquidated.

Liquidation Volume By Exchange: Bybt.com

The above data from Bybt shows the liquidation volume by cryptocurrency exchange. While Bybit had the most short positions liquidated, Binance saw the full effect of the short squeeze with Bitcoin hitting $48,000 on its BTC/USDT perpetual swap contract.

In aggregate, short sellers were liquidated to the tune of over $1 billion. This is among the largest short squeezes in the history of Bitcoin, and surely the largest short squeeze when accounting for the pace at which it happened.

In early 2021, we saw another short squeeze after Tesla CEO Elon Musk announced Tesla will accept Bitcoin as payment for its electric vehicles. Over the following days, Bitcoin short sellers had over $500 million of Bitcoin liquidated. 

If you measure the short squeeze from when Musk added #Bitcoin to his Twitter bio, the squeeze accounted for over $1.2 billion of liquidations over a matter of days. Still, the $1 billion of cryptocurrency liquidated on July 25 seems to be among the largest short squeezes in the history of cryptocurrency. 

Binance Perpetual Swap BTC/USDT Contract 1 Hour Candles: Binance

Due to this short squeeze, the price of Bitcoin surged to over $48,000 on Binance. Most other exchanges saw Bitcoin rise to about $40,000 before finding support around $37,000. But what is a short squeeze, and why does it cause the price to go up?

When an investor is short, they essentially sell Bitcoin to buy back at a lower price. If Bitcoin’s price appreciates from when a short seller enters a position, then the short position becomes worth less. To limit losses, short sellers must buy back Bitcoin at this higher price to close their short position. 

This creates a cascading effect on the price of Bitcoin. As more short sellers are liquidated or sell to limit loss, more Bitcoin is bought at market price. These buy orders push Bitcoin’s price higher, causing more liquidations to push the price even higher.

Where To Buy BTC Today

Looking to get started investing in Bitcoin? There are plenty of U.S based exchanges that can help you get started today. Make sure to use an exchange that's reputable and secure; some of our favorites are Coinbase, eToro and Gemini. All these exchanges offer low fees and an easy to use user interface. Coinbase currently has a program called Coinbase Earn which pays you in crypto for learning about this innovative new industry!

  • Coinbase
    Best For:
    Active Crypto Traders
    securely through Coinbase's website

    Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.

  • Gemini Crypto
    Best For:
    New Investors
    securely through Gemini Crypto's website
  • eToro
    Best For:
    Social Investing
    securely through eToro's website

    Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk

    Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more

Disclosure: ²Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts

See also: Is Bitcoin a Good Investment? and Learn About Cryptocurrency

The Crypto Rocketship: Weekly Newsletter
  • Exclusive Crypto Airdrops
  • Altcoin of the Week
  • Insider Interviews
  • News & Show Highlights
  • Completely FREE