Bitcoin experienced a turbulent night on Tuesday, with its value dipping before making a dramatic recovery on Wednesday. The leading cryptocurrency fell to approximately $75,600 in the early hours as midterm election results revealed Democratic control over both houses of Congress. However, by the evening, Bitcoin surged past $80,000, even reaching a peak of over $81,000. This swift turnaround transformed what could have been a bleak night into a significant market rally, primarily impacting those who had bet against it. More than $300 million in Bitcoin short positions were reported as liquidated within a 24-hour timeframe, with approximately $222 million of that amount being covered in just one hour as prices soared, according to CoinGlass data referenced by CoinMarketCap. Ethereum also saw significant gains, rising over 6% to reach $2,421, its highest in two weeks, while Solana climbed nearly 2% to just below $95.
Short Sellers Squeezed
Short sellers engage in a strategy where they borrow Bitcoin, sell it, and intend to repurchase it later at a lower price to pocket the difference. This strategy succeeds until the market moves against them, at which point exchanges automatically cover their positions by buying back Bitcoin at the current market price. This process of forced buying contributes to the rally, leading to additional short positions being closed. CoinGlass data indicates that around $222 million in Bitcoin shorts were closed by approximately 10:25 a.m. ET, with nearly all liquidations in that period resulting from short sellers being liquidated. Glassnode observed that traders had increasingly engaged in short selling throughout the week as prices dipped, with a significant cluster of forced purchases occurring near $87,000, close to Bitcoin’s September peak.
Options traders appeared to anticipate the market’s moves earlier than those in the spot market. On election day, about $660 million in Bitcoin options were traded on Paradigm, more than double the amount from the previous day, and roughly $420 million of that was directed toward call options, which profit when prices rise, compared to around $105 million in put options sold. Markus Thielen, founder of 10x Research, expressed to CoinDesk prior to the rally that Bitcoin seemed oversold according to momentum indicators and could potentially surge toward $82,000. By evening, Bitcoin was nearing that target. Additionally, open interest in Bitcoin futures increased throughout the day, which Glassnode interprets as traders entering new long positions rather than merely closing existing shorts. The squeeze was just one element of the story; fresh capital was also clearly opting to capitalize on the price dip.
Wall Street’s Impact
The momentum of the bounce gained traction once U.S. markets opened, with large technology stocks spearheading an early rally while Treasury yields and oil prices declined, allowing cryptocurrencies to ride this wave of optimism. Traders had been factoring in a Democratic victory for weeks: Polymarket had indicated a likelihood of over 75% for a Democratic sweep for some time, according to Nicolas Quatravaux, head of EMEA at crypto derivatives network Paradigm. “The outcome itself wasn’t unexpected,” he noted to CoinDesk, suggesting that the overnight events were less about the election results and more about the alleviation of uncertainty. Dick Lo from TDX Strategies echoed this sentiment: Bitcoin initially dropped following the sweep, only to regain its footing once clarity emerged about the results, prompting the market to shift from concern to buying.
Pending Demand from Key Buyers
Despite the excitement of the momentary surge, caution remains warranted. The Coinbase Premium, which tracks U.S. demand for Bitcoin, remained negative throughout Wednesday’s rise, indicating that American buyers were not the driving force behind this increase. Spot Bitcoin ETFs lost over $500 million during the two trading sessions leading up to Tuesday, as reported by Farside data, bringing total outflows to over $1 billion recently. Vikram Subburaj, CEO of Giottus, explained to CoinDesk that if Bitcoin maintains its position above $78,000 while ETF redemptions continue, it would signify that buyers from other areas are absorbing the available supply. Until the flows from ETFs improve, the current rally relies heavily on derivatives and momentum rather than the consistent spot buying needed for lasting trends.
According to Glassnode, key support levels are identified between $73,000 and $76,000, where the average cost for newer buyers, the 200-day average, and a consolidation of long liquidations converge. Maintaining this range would indicate a healthy pullback within the ongoing uptrend that started in August. Conversely, a drop below $73,000 could signal a longer consolidation phase. The next crucial moment arrives on Friday with the release of the U.S. jobs report, providing fresh insights into the economy and interest rates. For now, the status quo is straightforward: Bitcoin declined below $76,000, climbed back above $80,000, and short sellers incurred losses of about $300 million in a single day.
Bitcoin rebounded from below $76,000 to above $80,000 within a remarkable timeframe, costing short sellers roughly $300 million in the process. The pressure on short positions may continue if prices rise toward the nearly $87,000 level, but the sustainability of this rally hinges on the presence of real buyers, who have largely remained on the sidelines in the U.S. spot market and ETFs. The outcomes of Friday’s jobs report will be telling, and until then, this represents a sharp rebound in a market that is still significantly below its recent highs, rather than a celebration of victory.
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Author: Dorian Fenwick
Silicon Valley Newsroom
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