Why Bitcoin’s Biggest Two-Year Rally Appeared Driven Mostly by Short Liquidations Rather Than New Bulls
Table of Contents
You might want to know
1. Did Bitcoin’s large, rapid price increase reflect new bullish conviction or the forced closure of short positions?
2. What market indicators distinguish a one-off squeeze from a durable regime change in crypto markets?
Main Topic
In August, Bitcoin experienced its sharpest upmove in two years, gaining roughly 24.6% over a five-day period. At the same time, coin-denominated open interest—a measure commonly used to gauge the amount of leverage active in the market—declined by about 12.6%. That juxtaposition is important because when price rises while overall open interest falls, it suggests the rally was largely powered by the forced unwinding of short positions rather than an influx of fresh long bets.
The data underlying this assessment comes from a joint analysis by on-chain analytics firm Glassnode and crypto derivatives exchange Bybit, covering activity through the settled close on August 23. Their dataset spans multiple crypto-native venues (excluding CME), and it shows that approximately 64,000 BTC of open interest was closed during the event window. Of the capital liquidated during the move, short positions accounted for an outsized share—about 89% of each dollar liquidated.
Options markets reflected the same dynamic. For nearly a year prior—361 consecutive days—put options (used to hedge or speculate on downside) traded at richer premiums than calls. That persistent put-rich skew signaled prolonged downside insurance demand and bearish positioning. During the rally, a single session flipped that extended run, forcing repricing across options books as participants reassessed tail-risk exposure. Put-call relationships and option skew are useful barometers of market sentiment because they aggregate positioning and hedging demand across diverse participants.
Further evidence came from futures and volatility measures. Bybit’s volatility index moved several times its normal daily range in a single session, indicating intense, short-lived uncertainty and repricing. The front of the futures curve (near-term contracts) repriced sharply upward while longer-dated contracts barely moved. That pattern—the front-end moving more than the long end—commonly indicates traders viewed the event as transitory rather than the start of a sustained structural change in expected returns or risk premia.
Put simply: the rally behaved like a classic short squeeze—rapid price appreciation driven by the forced closure of leveraged short exposure—rather than broad-based accumulation of new long positions. Supporting metrics included outsized short-side liquidations in single sessions and multi-day periods where the majority of market liquidations were shorts rather than longs.
To illustrate the scale: during one intense session following the initial surge, more than $230 million in BTC short positions were liquidated, contributing to over $445 million in liquidations across the broader crypto market. CoinGlass reported roughly $529 million in total liquidations over a 24-hour span, again with shorts responsible for most of that volume. These acute, concentrated liquidation events amplify price moves and can temporarily decouple price action from longer-term fundamentals or conviction-driven accumulation.
That said, several caveats are worth emphasizing. The Glassnode-Bybit report focuses on crypto-native venues and excludes some institutional venues like CME; therefore, its numbers describe behavior in a substantial but not fully comprehensive subset of global trading. Short squeezes can be powerful and dramatic, but they do not by themselves indicate a permanent change in market structure or sentiment.
Whether the August repricing represents a durable regime shift or a one-off event remains an open question. If the market has truly shifted to a more bullish regime, we would expect ongoing evidence such as sustained call-bid skew (calls trading richer than puts), a persistent firmness in the front of the futures curve, and a drop in funding rates consistent with longs paying to hold positions. Conversely, if put premiums return and front-end futures soften while funding fades, the August move will be interpreted as a transient squeeze that the market ultimately absorbed without altering its longer-term positioning.
The subsequent price behavior provides additional context. Bitcoin later traded back above $80,000 amid macro developments—specifically, a Federal Reserve interest-rate decision that combined a rate hike with a dovish forward outlook. That macro event likely contributed to the renewed rally, showing how both position-driven squeezes and macro fundamentals can interact to produce large moves.
In summary, the evidence from open interest, liquidation composition, options skew, futures curve behavior, and realized volatility converges on the interpretation that the August rally was predominantly driven by short liquidation. Whether that change sticks depends on how option skews, futures curves, and funding dynamics evolve in the weeks and months following the event.
Key Insights Table
| Aspect | Description |
|---|---|
| Price Move | Bitcoin rose ~24.6% over five days in August. |
| Open Interest | Coin-denominated open interest fell ~12.6%, indicating net deleveraging during the rally. |
| Liquidations | About 64,000 BTC of open interest was closed; shorts accounted for ~89% of liquidated dollars. |
| Options Skew | 361-day run of richer puts vs. calls was flipped in a single session, prompting repricing. |
| Futures Curve | Front of the curve repriced sharply while long-dated contracts moved little—consistent with a one-off event. |
| Coverage | Data comes from a Glassnode-Bybit collaboration across four crypto-native venues (excludes CME). |
Afterwards...
Looking forward, several areas merit continued observation and research. Improved, more comprehensive market-wide data that integrates crypto-native venues with institutional platforms (such as CME) would sharpen interpretation of large moves and reveal whether dynamics are consistent across market segments. Enhancing transparency around derivatives positioning, aggregate leverage, and cross-exchange flows would also help distinguish between squeezes and structural sentiment shifts.
From a technical and analytical perspective, continued attention to option skew dynamics, term structure of futures, and funding-rate trends will be crucial. These indicators collectively offer a robust signal set to assess whether a price move represents transient forced liquidation or a durable repricing. Additionally, better real-time monitoring tools for liquidation concentrations and cross-product arbitrage could reduce abrupt market dislocations.
In short, while August’s rally looked like a textbook short squeeze, only subsequent patterns in skew, curve behavior, and funding will confirm whether markets have truly entered a new regime or simply absorbed a dramatic, short-lived realignment.