Bitcoin's rapid ascent toward $87,000 delivered a punishing blow to traders holding bearish positions, but the subsequent pullback is testing whether the rally can stand on its own. The cryptocurrency climbed to roughly $87,300 on Monday before slipping to around $85,800 on Tuesday, having earlier broken through resistance near $82,000.
The surge triggered a wave of forced short covering that added momentum to the move. According to CoinGlass data cited by CoinDesk, approximately $648 million in bearish crypto positions were liquidated as Bitcoin first crossed $85,000, with $278 million of that tied directly to Bitcoin. As prices pushed above $87,000 later in the session, additional short liquidations followed.
"Bitcoin up 5% this morning due to short perpetual futures contracts being liquidated," Jim Ferraioli, head of crypto research at Charles Schwab, told CoinDesk.
The mechanics of a short squeeze
The speed of the advance reflects a well-known market dynamic. When a leveraged short position hits its liquidation threshold, the exchange closes it by purchasing the underlying asset. That buying pressure lifts the price, which can trigger the next tier of bearish positions to liquidate. The process is powerful but inherently self-limiting: once enough shorts have been cleared, the automatic demand evaporates.
Monday's acceleration therefore revealed a great deal about how heavily traders were positioned against Bitcoin, but far less about how many investors are willing to buy voluntarily near $87,000.
Leverage is rebuilding beneath the surface
A more cautionary signal emerged from derivatives data. Aggregate crypto open interest rose 7.59% to $156 billion during the squeeze, according to CoinDesk, even as forced closures swept through the market. That suggests traders were replacing liquidated positions with fresh leverage rather than stepping aside.
Nansen senior research analyst Nicolai Sondergaard told crypto.news that Bitcoin's move appeared to combine renewed ETF demand with a large short squeeze. "The important distinction is that price has turned bullish faster than positioning has," he said.
That matters because a derivatives-led rally can become fragile if leverage expands faster than spot demand. There are signs of genuine buying: US spot Bitcoin ETFs attracted about $433 million on Friday, according to data cited by CoinDesk, reversing much of the heavy outflows seen earlier in the week.
The next leg higher therefore needs ETF and spot demand to carry more of the load. If those flows weaken while open interest remains elevated, the same leverage that accelerated the rally could amplify a reversal.
A longer-term technical shift
The bullish counterargument is that Monday's squeeze arrived after a significant technical development. Bitcoin closed last week above its 50-week moving average for the first time in 45 weeks.
Galaxy Digital research head Alex Thorn said in research highlighted by Unchained that reclaiming this level has historically provided strong confirmation that bear-market lows are in. Galaxy's historical work found that in four of the five completed Bitcoin bear markets that lost the 50-week average, the first successful weekly reclaim after the cycle low was not followed by another lower low. The 2021-22 cycle was the exception.
That does not guarantee the latest breakout will hold. But it suggests the short squeeze may have accelerated a broader change in market structure rather than created the entire rally. Holding above the former resistance zone after forced buying fades would strengthen the case that fresh demand has taken over.
This article is for informational purposes only and does not constitute financial advice.
