Summary

  • Bitcoin surpassed $72,000 on Thursday, marking a nearly 15% increase since Monday.
  • Market analysts attribute this surge to Treasury bond purchases, policy updates, and a significant short squeeze.
  • With the short squeeze largely played out, experts are now focusing on spot demand, technical indicators, and Treasury yields.

The recent spike in Bitcoin's value above $72,000 has led to the liquidation of billions in bearish positions, but analysts caution that new buyers are essential for continued growth.

On Thursday, Bitcoin hit its highest level since June, having risen close to 15% since the beginning of the week, resulting in over $3 billion in liquidated short positions. This marks the largest short position liquidation for Bitcoin since at least 2021. Additionally, spot Bitcoin ETFs saw a significant inflow of $517 million on Wednesday, their highest single-day gain since May.

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Julio Moreno, the head of research at CryptoQuant, linked the rally to the U.S. Treasury acquiring long-term government bonds, which many interpreted as a sign of increased liquidity. Furthermore, comments from President Donald Trump hinting at possible U.S. government purchases of Bitcoin also contributed to the positive sentiment.

Moreno indicated to Decrypt that the rally could be sustainable if demand continues to rise following these macroeconomic events. "Officially, we are still in a bear market, so a price correction is possible, especially after such a sharp rise," he noted.

He is monitoring Bitcoin's 365-day moving average, which is currently around $83,000, along with CryptoQuant's profit-and-loss index and bull score, neither of which has turned bullish yet. "To confirm the start of a bull market, I’m watching for CryptoQuant's P&L Index to cross its 365-day moving average upwards, which hasn’t happened yet," Moreno explained. "Additionally, CryptoQuant's bull score remains in bearish territory, so I’m waiting for a shift into bullish conditions."

Nicolai Sondergaard, a Senior Research Analyst at Nansen, mentioned that Bitcoin's technical outlook has improved after reclaiming its 200-day simple moving average at around $69,000. Bitcoin is currently about 8% above its 20- and 50-day moving averages, and its MACD, a momentum tracking indicator, has turned bullish.

"The critical level is the 200-day SMA near $69,000; maintaining above it validates the breakout, while falling below would indicate a failed move," Sondergaard told Decrypt. "The recent high of approximately $72,824 represents immediate resistance."

However, Sondergaard cautioned that the rally was largely fueled by liquidations rather than genuine buying interest, which could leave Bitcoin vulnerable once the short squeeze subsides. He noted that positioning is mixed, with whales and public figures on Hyperliquid holding net long positions of $27.9 million and $33.9 million, respectively.

"The biggest risk is that this was merely a spike from a short squeeze, not a sign of sustained buying," he stated. "Once the forced covering ends, a lack of follow-through may lead to a rapid reversal."

Adam McCarthy, a researcher at the crypto trading firm Lo:Tech, also attributed the price surge to the Treasury's expanded buyback program and the short squeeze. He pointed out that over half of Wednesday's gains occurred within a single hour as traders were forced out of a heavily shorted position.

"The Treasury's buyback expansion prompted the market to adjust prices, but more than half of Wednesday's gain happened in just one hour due to a forced exit from a one-sided short position," McCarthy explained to Decrypt. "That momentum is exhausted, so any future gains must come from real buying rather than short covering."

McCarthy is keeping an eye on the 30-year Treasury yield, particularly whether it approaches 5.3%, as well as crypto funding rates to gauge signs of sustained buying activity. "In crypto, we need to see funding rates indicating a real long premium, as that reflects actual buying interest," he said.

He warned that the short positions that contributed to Bitcoin's rise have largely been eliminated. "The short base is mostly cleared, and nothing has taken its place, so the same momentum that brought us here may not be repeatable," McCarthy noted. "If dealers are short gamma at $70,000, as we suspect, the hedging that amplified the ascent may also exacerbate any decline."

Bitwise Research Analyst Ishmael Asad expressed a more optimistic view, describing the rally as the strongest evidence yet that Bitcoin has reached its bottom. He highlighted the Treasury's increased bond buybacks, the SEC's proposed Regulation Crypto Assets framework, and this week's White House crypto summit as key driving factors.

"Following this sharp increase, I wouldn’t anticipate the rally to maintain the same pace moving forward," Asad told Decrypt. "However, I view this movement as the strongest confirmation we’ve had that the bottom is in place."

Asad mentioned that much of the potential downside, including the failure to pass the Clarity Act this year and potential interest rate hikes, has already been factored into the market. He added that a return to a bull market would necessitate further catalysts.

"The market will likely remain sideways or trend higher in the coming months as we approach key milestones, such as a potential Senate vote on the Clarity Act in September," he predicted.

CoinShares Head of Research James Butterfill also foresees a favorable environment but believes Bitcoin is more likely to trade within a range rather than experience a sustained breakout. "This rally is mainly a macroeconomic story rather than a crypto-specific one," Butterfill told Decrypt. He noted that recent inflation and employment data have softened expectations for further tightening by the Federal Reserve, while large Bitcoin holders have ceased selling and begun to accumulate again.

"We expect the supportive backdrop to continue, but we currently characterize the market as range-bound instead of experiencing a sustained breakout, as accumulation by large holders is not yet substantial enough to indicate that," he said.

Digital asset investment products have attracted about $1.3 billion this week. Nonetheless, Butterfill anticipates Bitcoin will remain within a trading range because the accumulation by large holders is not robust enough to support a lasting breakout.

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Butterfill noted that Bitcoin's rise above its 200-day moving average has improved its technical outlook, with $80,000 now being a crucial level to monitor.

"On the upside, the $80,000 area remains significant, and a decisive move beyond this level would likely require clearer signals from the Federal Reserve indicating a shift away from further tightening," he stated. He added that monetary policy remains the biggest risk factor, emphasizing that persistent inflation could compel the Federal Reserve to maintain a tighter stance longer, potentially reversing the favorable liquidity conditions that have aided Bitcoin's rally.

"With accumulation by large holders still modest, the market lacks the level of conviction typically necessary for a sustainable breakout," Butterfill concluded.