Bitcoin is seemingly on the brink of a major long squeeze, with long positions on Bitfinex reaching an all-time high of 43,300 BTC.
This means that there is a total of $303 million in long positions betting that Bitcoin will go up. However, the reality is that a squeeze could well cause a dramatic correction to yearly lows.
A long squeeze is where traders who are trapped in long positions feel the need to sell in order to cut their losses. This pressure typically leads to a significant decline in the price of the underlying asset.
The last time long positions on Bitfinex exceeded 40,000 BTC was on March 25 2018, which also coincided with an exponential moving average (EMA) death cross on the daily chart.
The squeeze caused a short-term decline in price of more than 28%, with Bitcoin going on to drop by 65% in the following six months.
Bitcoin has also experienced a death cross this time around, with the 50 EMA crossing the 200 EMA to the downside at the end of November.
The price of Bitcoin has gradually slumped since the cross and is now residing at around $7,080 after being suppressed by the daily 22 EMA.
A long squeeze coupled with the recent death cross has the potential to drive Bitcoin towards the $5,900 level of support, which is a historical level dating back to the 2018 bear market.
Enough pressure to the sell side could even see Bitcoin descend to the nervous $3,150 region, which is the same point it fell to in December last year.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.