Traders Lean Bearish as Bitcoin Nears Record Highs, But Short Squeeze Potential Looms

Despite bitcoin (BTC) hovering above $110,000 and edging closer to a possible new all-time high above $112,000, crypto traders are showing increasingly bearish sentiment.

Recent data from Coinalyze reveals that as bitcoin climbed from $106,000 to $110,000 this week, the long/short ratio dropped sharply—from 1.223, indicating a bias toward long positions, to 0.858, reflecting a tilt toward shorts.

This particular long/short ratio measures the proportion of accounts positioned long or short and serves as a gauge of retail investor sentiment. Notably, the ratio has turned negative multiple times during bitcoin’s surge past $100,000—a stark contrast to the consistent positive readings seen during the 2021 bull market.

Meanwhile, open interest rose significantly from $32 billion to $35 billion during the same period, suggesting considerable capital has flowed into short bets on bitcoin. However, funding rates have stayed positive, indicating that some traders remain confident in long positions.

Since early May, bitcoin has largely been confined to a narrow trading band between $100,000 and $110,000, with each level tested three times as support and resistance.

Technical signals remain mixed. The relative strength index (RSI) continues to show bearish divergences, weakening on each attempt to break above the $110,000 threshold.

The surge in short positions might simply reflect lower-timeframe traders exploiting the current range, shorting resistance near $110,000 and flipping long if bitcoin retests the $100,000 support. A similar pattern emerged on June 22 when the long/short ratio spiked to 1.68 as bitcoin briefly dipped below $100,000 before swiftly recovering.

Yet, there’s still a bullish scenario on the table: the growing number of short positions could set the stage for a short squeeze. If bitcoin pushes beyond resistance and triggers stop-losses and liquidation points above its record highs, it could spark rapid buying pressure and propel the price even higher.