Bitcoin Bounces Back, Short Squeeze Possible

The price of bitcoin bounced on Tuesday, reversing losses from the previous day that were driven by fears around FTX liquidations. Bitcoin was last higher by 4.5% at $26,185.72, according to Coin Metrics. On Monday, bitcoin dipped below the key $25,000 support level for the first time since March. The rebound could be fueled in part by investors who were betting against the crypto asset scrambling to cover short positions, in other words, by a short squeeze.

Concerns About FTX Liquidations

Investors have been selling their crypto in anticipation of a hearing Wednesday in which liquidators could be permitted to start selling the assets of FTX and Alameda Research, its sister company. The tokens native to the Solana and Polygon networks are among some of the company’s biggest holdings. On Monday they fell 3% and 5%, respectively. On Tuesday, they were last higher by about 2.5% each.

Challenges for Bitcoin’s Recovery

There’s still room for disappointment, however. Fairlead Strategies’ Katie Stockton said weakened momentum in the intermediate term could make it difficult for bitcoin to see a durable recovery. With Tuesday’s bounce, the cryptocurrency’s next level to test on the upside is $27,600 – its 50-day moving average.

Market Sentiment and Regulatory Factors

FTX liquidations aside, the crypto market has recently struggled for meaningful catalysts as investors wait for clearer regulation and attention has shifted back to inflation and economic inputs – after a string of stronger-than-expected data points last week renewed concern that the Federal Reserve could raise rates once more before yearend. This week, investors get the August consumer price index and producer price index readings on Wednesday and Thursday, respectively.