Bitcoin Short Squeeze to $112K Possible Following US Shutdown Resolution
Key Insights
- A resolution to the US government shutdown could trigger a short squeeze, yet traders doubt its ability to sustain Bitcoin's rise beyond $112,000.
- Investor caution is on the rise due to high AI valuations and weak consumer earnings, impacting risk appetite and limiting confidence in Bitcoin's rally.
Bitcoin (BTC) has reclaimed the $106,000 mark, with the US government shutdown possibly nearing an end. Analysts warned that prolonged government funding issues could further dampen consumption, especially after numerous flight cancellations. As the Nasdaq Index climbed 1.5%, the cryptocurrency market also saw gains.
Traders are currently evaluating Bitcoin's ability to maintain recent gains amid weak demand for bullish BTC derivatives positions.
Currently, two-month BTC futures trade at a 4% premium over spot markets, below the neutral 5% threshold. This lack of interest in leveraged long positions may reflect the $270 million in forced liquidations between Tuesday and Wednesday, after Bitcoin lost support at $107,000. Buyers may require additional economic recession confirmation before re-entering the market.
The US Federal Aviation Administration's operational cutbacks led to over 5,000 flight cancellations, according to Yahoo Finance. Some unpaid air traffic controllers have stopped working. Despite a rare Sunday session in the US Senate, there is no assurance of resolving the standoff. A breakthrough in the government shutdown could boost Bitcoin trader optimism.
The US Supreme Court's questioning of President Trump's authority on import duties adds another layer of risk. The ongoing government shutdown's duration and the sustainability of additional tariffs remain uncertain.
Bitcoin Reflects Broader Market Concerns on US Economic Weakness
While short-term economic impacts are unclear, they have so far supported the fiscal budget by delaying expenditures and generating extra revenue. Nonetheless, Bitcoin is not immune to broader market worries about US economic weakness.
The BTC options skew (put-call) fell to 6% on Monday, indicating a neutral-to-bearish market. When traders expect a sharp correction, this metric usually jumps to 10% or more, as put options trade at a premium. What could restore trader confidence in a potential $120,000 rally remains uncertain, but current indicators suggest skepticism.
Unlike monthly BTC futures, perpetual contracts stay closer to spot prices due to adjustable funding rates. These contracts are favored by retail traders, making it important to assess sentiment improvements following Bitcoin's $106,000 level retest.
Under balanced conditions, the funding rate should be between 6% and 12% to reflect risk and opportunity costs. The current 5% rate is concerning, showing a lack of retail trader interest even after Bitcoin tested the $100,000 support. This absence of leveraged bullish demand should not be mistaken for outright bearish sentiment.
Fears of excessive AI valuations and weak consumer-focused corporate earnings have led investors to become more risk-averse. The eventual end of the government shutdown could alleviate tensions and push Bitcoin above $112,000, potentially triggering a short squeeze. However, relying solely on the shutdown's resolution for a bullish breakout seems overly optimistic.
Disclaimer: This article is for informational purposes only and should not be considered legal or investment advice. The views expressed are those of the author and do not necessarily reflect Cointelegraph's views.