The recent surge in Bitcoin (BTC) and Ethereum (ETH) prices has caused a wave of forced deleveraging, leading to nearly $1 billion in liquidations on May 8th. The majority of these liquidations, about 80%, were from short positions, indicating a classic short squeeze scenario unfolding in the market.
Despite the bullish momentum, it may not be smooth sailing ahead for the bulls. The Relative Strength Index (RSI) for both BTC and ETH has entered overbought territory, historically signaling a potential stall in momentum and a possible opportunity for tactical short positions to enter the market. Coinglass data revealed that 139,241 traders were liquidated within 24 hours, with total liquidations reaching $328 million.
The recent liquidation events have highlighted the fragility of the current market conditions. With BTC and ETH trading above key support levels, technical indicators are flashing caution. The On-Balance Volume (OBV) has started to stall, signaling a potential slowdown in the rally driven by retail investors. Additionally, the increase in Open Interest (OI) to $137.44 billion suggests that leveraged exposure is once again a significant factor in the market.
The thin bid walls, coupled with the spike in OI, could set the stage for a potential liquidation cascade if support levels are breached. ETH has already experienced a $61.25 million long closure, while BTC saw over $600k in long liquidations within a 4-hour timeframe. The recent long squeeze events may just be the beginning, with the market poised for further volatility if support levels are not sustained.
As BTC and ETH approach local highs, the next move will depend on how institutional investors react. Whale activity at these levels typically indicates either a distribution trap or a controlled consolidation phase. Momentum indicators are showing signs of exhaustion, with opportunistic shorts starting to enter the market. Lookonchain data recently observed a whale moving $13 million USDC to Hyperliquid, indicating a tactical short position on both BTC and ETH.
If smart money does not intervene to drive continuation and trap bears once more, the market could witness a reversal in sentiment. The thin bid-side and exhausted upside momentum could lead to a cascading unwind, potentially reversing the gains made from the recent short liquidations. Therefore, it is crucial for the bulls to maintain control to avoid a market downturn.
In conclusion, the current market conditions for BTC and ETH are delicately poised, with the potential for further volatility ahead. It will be essential to monitor whale activity and institutional positioning to gauge the direction of the market in the coming days.