Bitcoin (BTC) is once again exhibiting a classic signal that drove the price to all-time highs during the last bull run. Although Bitcoin on the technical phase is set for a new all-time high, the futures market is skewed more towards the longs, leaving it vulnerable to a potential long squeeze if the price fails to sustain its upward momentum.
Bitcoin flashes historic all-time high signal
According to an analyst who goes by the pseudonym Crypto Thro, Bitcoin is once again flashing the historic all-time high signal. During the last leg up, Bitcoin was making lower lows while the relative strength index was making higher lows.
This pattern is known as a bullish RSI divergence, which occurs when Bitcoin’s price makes lower lows while the Relative Strength Index (RSI) forms higher lows. Normally, a decline in price would be accompanied by a declining RSI, indicating that bearish momentum is strengthening.
However, when the RSI rises despite Bitcoin making new lows, it suggests that selling pressure is gradually weakening. This can happen when sellers continue pushing the price lower but with less momentum, while buyers begin absorbing the available selling pressure. So this suggests that the market is getting ready to catapult the prices to a new all-time high based on historic data.
Bitcoin respects multi-year trend line and 200-day MA
Meanwhile, Bitcoin has been holding above the $62K support level consistently and, most importantly, above the multi-year trendline and the 200-day MA. Remaining above the multi-year trendline means Bitcoin is still respecting a long-term market structure. A trendline that has influenced price for several years can act as an important dividing line between a broader bullish and bearish structure. Staying above it suggests that the long-term uptrend remains intact.
The 200-day moving average (200-day MA) adds another layer of confirmation. This indicator is widely watched as a gauge of Bitcoin’s long-term trend. When BTC trades above the 200-day MA, the market is generally considered to have a stronger bullish structure. Holding above it also means recent price weakness has not yet been enough to shift the broader trend bearish. So the market is convicted.
BTC faces crowded-long risk despite bullish setup
In addition to this, the futures market is also heavily skewed towards the longs. This shows that traders are betting that the price will continue to rise. The COT index (Commitment of Traders Index), which measures how extreme a trader group’s current futures net position is compared with its historical range, indicates 97.
This shows that large speculators such as hedge funds and asset managers are more bullishly positioned than they have been during historical periods. However, the heavily skewed long positioning also presents a risk, as the market could be becoming overcrowded with bullish bets.
If Bitcoin experiences even a relatively small downward move, some leveraged traders may be forced to close their long positions or face liquidations. This could trigger additional selling pressure, pushing the price lower and forcing more leveraged longs to exit. The resulting chain reaction could create a cascading liquidation event, potentially turning a minor pullback into a sharper decline.
