Bitcoin surged past the US$81,000 level on August 25, thus recording a three-month high.
At the time of writing, the price of Bitcoin was trading at US$78,798, up 0.06% since the opening of the Asian session on Wednesday.
The increase occurred following the increase in positive sentiment towards global liquidity, in addition to pressure on short positions that triggered the short squeeze phenomenon in the crypto market.
Bitcoin Faces Short Squeeze
CoinGlass data shows that approximately US$240 million in Bitcoin short positions were liquidated within 24 hours.
In comparison, the total amount of long positions that were liquidated was only around US$88.83 million.
This situation shows that most traders who were betting that Bitcoin would fall were forced to close their positions when the price continued to rise.
Closing these short positions automatically triggers buying pressure because traders need to buy back Bitcoin to close their trades.
This situation could then potentially accelerate the rise in Bitcoin prices.
Hopes for Global Liquidity
The Bitcoin rally also occurred after the US Treasury Department on August 19 announced plans to at least double the amount of long-term government bond repurchases.
The move sparked hopes for increased liquidity in the financial system.
At the same time, US government debt, which has exceeded US$40 trillion, continues to be the focus of investor attention.
This situation has the potential to reinforce the narrative that investors will seek alternative assets if concerns about the value of fiat currencies and fiscal sustainability increase.
Gold, which also recorded strong gains, is one example of an asset that benefits from this sentiment.
Iran Sanctions Increase Geopolitical Risks
The US Treasury Department also launched Operation Economic Outcast against Iran on August 24.
Through this action, the Office of Foreign Assets Control (OFAC) expanded the target of sanctions against individuals and entities involved in the Iranian economic sector to include digital assets, gold, aviation and shipping.
However, these factors cannot be considered the direct cause of Bitcoin's rise.
On the contrary, these geopolitical developments occur at a time when sentiment towards alternative assets is increasing and has the potential to add to the uncertainty in global financial markets.
Is Bitcoin Entering a New Bull Market?
VALR Chief Marketing Officer Ben Caselin believes that Bitcoin's rise above US$80,000 reflects a larger structural change and is not simply the effect of a short squeeze.
He sees increased liquidity, concerns about the value of the currency, the development of crypto regulations and increased institutional participation as among the factors that could potentially support Bitcoin's continued rise.
Progress related to the CLARITY Act is also expected to increase confidence in the digital asset regulatory environment.
At the same time, institutions, companies holding Bitcoin in corporate treasuries and retail investors are seen to be increasingly confident in increasing market participation.
If these factors continue, the current momentum has the potential to develop into a more structural bull market.
However, Bitcoin's rise still needs to be supported by spot demand and continued real capital flows to confirm that this rally is not simply driven by a short squeeze.
