On Thursday, the Bitcoin price surged past the $37,000 mark amid growing optimism for a spot ETF, marking it the first time since May 2022 that the largest digital asset has reached this level. The recent rally of BTC may be attributed to short sellers exiting their positions, which has resulted in a "short squeeze" causing Bitcoin prices to rise. During early Asian trading hours, nearly $50 million in liquidations occurred within a four-hour period, further fueling the upward momentum. Just a few hours prior, BTC had already surpassed $36,000, marking its highest point in 18 months.
Why is the Bitcoin Price Surging?
Bitcoin's recent surge can be attributed to the growing optimism surrounding the potential approval of a BTC-backed ETF by U.S. regulators. This development is expected to attract a substantial influx of investment capital into the pioneering cryptocurrency, as suggested by industry experts. The positive sentiment was further bolstered on Wednesday when the Securities and Exchange Commission initiated discussions with Grayscale Investments regarding the specifics of their application to transform their bitcoin trust, GBTC, into an Bitcoin ETF.
What is a Short Squeeze?
In the event of a trader's inability to meet the margin requirements for a leveraged position, resulting in a partial or total loss of their initial margin, an exchange may forcefully close the position. This action is known as liquidation and is taken to mitigate further losses. When there is a sudden surge in the price of Bitcoin, it is usually because a short squeeze has occurred. This happens when the BTC price unexpectedly rises and prompts short sellers to exit their positions, resulting in a surge of buying activity.
This phenomenon recently caused over $21 million worth of short positions to be liquidated on futures exchange BitMEX, followed by OKX and Binance. This also suggests that the surge may have been influenced by market trades originating in Asia, where these exchanges have a significant user base. Liquidation, in this context, refers to the forced closure of a trader's leveraged position by an exchange due to the trader's inability to meet the margin requirements, resulting in a partial or total loss of their initial margin.
What is a Bitcoin Spot ETF?
A bitcoin spot ETF is an exchange-traded fund designed to offer investors direct exposure to the prevailing market price of bitcoin. Within this framework, the term "spot" denotes the immediate or present value of the underlying asset, namely bitcoin.
Analysts from Bloomberg Intelligence have reiterated their prediction of a 90% chance of a spot bitcoin ETF being approved in the U.S. by January. The SEC has issued delay orders for several companies, including BlackRock, Bitwise, VanEck, WisdomTree, Invesco, Fidelity, and Valkyrie. According to analyst James Seyffart, if the agency wants to allow all 12 filers to launch, this is the first available window since Grayscale's court victory was affirmed.