Bitcoin Rebounds Sharply Fueled by Short Squeeze and Robust ETF Demand
Bitcoin (BTC) has surged approximately 26% from its mid-August low, a rebound significantly accelerated by a powerful short-liquidation event. Data from Glassnode indicates that the price action on August 19th triggered the largest single-day liquidation event since 2019.
The majority of these liquidations occurred on major centralized exchanges, primarily impacting short positions. Analysts believe the actual total volume of liquidations may be even higher, as the available data excludes certain platforms like Hyperliquid. This significant squeeze has effectively cleared much of the liquidation liquidity that was positioned above the Bitcoin market. Consequently, Glassnode now observes short-liquidation levels situated above the current market price, with a comparatively smaller pool of long-liquidation levels remaining below.
However, the recent price recovery has not been solely driven by forced closures. Spot demand has also played a crucial role. U.S. spot Bitcoin ETFs experienced a substantial net inflow of $2.23 billion over a seven-day period, marked by consistent inflows and no days of outflows. This represents their strongest weekly intake of 2026, and the period included the largest ETF creation session observed since mid-January.
Concurrently, Bitcoin has continued to move away from exchanges as various wallet groups have adjusted their holdings. Notably, entities holding between 1,000 and 10,000 BTC have reduced their balances by a significant 50,500 BTC since June 30th. In contrast, larger entities, those holding over 100,000 BTC, have been net accumulators, adding 59,100 BTC to their reserves. This latter group includes exchanges, custodians, and wallets associated with ETF activity.
During the week of the short squeeze, the custody group alone added 31,500 BTC. While Glassnode noted this amount was comparable in scale to weekly ETF creations, the data does not confirm that these specific coins were directly transferred into ETFs.
Furthermore, every wallet-size cohort has shifted towards net accumulation, as indicated by Glassnode’s 30-day trend score. The firm described this as the most persistent all-cohort buying activity observed since late 2024.
Leverage has not returned to the market at the same pace as Bitcoin’s price recovery. Futures open interest has declined by 11% in BTC terms. Perpetual funding rates have remained near neutral and have recently turned negative, suggesting limited upward pressure from new leveraged long positions.
Beyond accumulation trends and leverage dynamics, on-chain data indicates that recent buyers are currently positioned below the prevailing price, while long-term holders represent the primary supply zone overhead. Bitcoin is now trading within this critical range, presenting a key market test for demand.
Several indicators point to a similar supply area above the current price, including cost-basis levels, ask liquidity, options positioning, and remaining liquidation clusters. A sustained move above this zone will be crucial in determining whether buyers can effectively absorb the available supply.
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