Bitcoin’s recent rally toward $76,000 faces a dilemma, leaving investors split on its near-term outlook.
Negative funding rates indicate investors are shorting the recent rally with the expectation of a reversal.
The divergence between bearish derivatives positioning and bullish spot catalysts sets up a potential short squeeze—or a bull trap—depending on which side breaks first.
“Funding rates this negative tell you the market is heavily short,” Daniel Reis-Faria, CEO of ZeroStack, told Decrypt.
“For a squeeze to gain real momentum, Bitcoin would need to break and hold above $80,000,” Illia Otychenko, lead analyst at crypto exchange CEX.IO, told Decrypt.
Such a move could trigger “cascading liquidations of short positions and accelerate the rally,” Otychenko said.
Reis-Faria’s bullish forecast involves Bitcoin pushing close to “$125,000 in the next 30 to 60 days,” adding that a short squeeze would help this case.
Short squeeze or bull trap?At this stage, a short squeeze isn’t guaranteed.
Additionally, the 0.72 put/call ratio is climbing, also reflecting growing demand for downside protection. “The pattern closely resembles late May 2022, when a similar squeeze setup instead preceded a double-digit sell-off,” Otychenko said.
Despite the demand from ETF investors and improving geopolitical outlook, there is a “real risk this setup turns into a bull trap rather than a breakout,” he warned.
Experts who spoke to Decrypt also maintained a similar outlook, adding that the geopolitical risks haven’t subsided but merely paused. A resumption of the U.S.-Iran war could further push oil prices higher, awakening inflation concerns and subsequently reducing risk appetite, keeping Bitcoin and the broader financial markets capped.
