Bitcoin price falls after Coinbase staking lawsuit decision, analysts warn of potential short-term squeeze
Bitcoin (BTC) and the broader cryptocurrency market are trading lower in early Wednesday morning following the Securities and Exchange Commission’s (SEC) legal victory over Coinbase and its staking program.
Coinbase attempted to have charges related to its staking service dismissed, but the presiding judge denied their motion. The judge held that the SEC properly asserted that Coinbase functioned as an exchange, broker, and clearinghouse under federal securities laws. The judge also noted that through its staking program, Coinbase engages in the offering and selling of unregistered securities.
According to this decision, the case will proceed with investigation. This is the second day in a row that significant developments related to the cryptocurrency exchange have impacted market sentiment, following yesterday’s public indictment against KuCoin and two of its executives.
These developments have led to increased volatility in Bitcoin. On Wednesday, BTC prices initially surged to highs near $71,800 before falling to $68,385 after the ruling was announced.
Despite the decline, Bitcoin rebounded above $69,260, registering a 1.5% loss on the 24-hour chart. This rapid recovery highlights a recurring trend in Bitcoin’s price action. That is, shorter downward movements are accompanied by longer, faster upward trends.
Analysts at The Kobeissi Letter highlighted this trend as a potential sign of a short squeeze, suggesting that Bitcoin may be preparing for a short squeeze.
They observed that the gap between institutional long positions and hedge fund short positions is currently at an all-time high. They also noted that long positions are continuing and Bitcoin’s new record highs are being driven by widespread sell positions.
CryptoQuant’s analysis supports this view, showing that Bitcoin demand has surged while sell-side liquidity continues to decline. The total ‘visible’ amount of Bitcoin from major companies is 2.7 million Bitcoin, down from an all-time high of 3.5 million Bitcoin in March 2020.
This declining sell-side liquidity coupled with record Bitcoin demand suggests Bitcoin may be approaching a liquidity crisis and could potentially support higher prices.
Excluding non-US exchanges from the calculation reduces liquidity further, reducing the Bitcoin liquidity stock to six months of demand.
According to CryptoQuant founder and CEO Juyoung Ki, current sell-side liquidity is “much lower” compared to demand compared to historical levels.
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