Bitcoin’s most significant rally in two years occurred without a corresponding increase in bullish leverage, according to a new report from analytics firm Glassnode and exchange Bybit. During a five-day period in August, Bitcoin prices rose 24.6%, yet coin-denominated open interest declined by 12.6%. This divergence indicates that the price movement was primarily fueled by the forced unwinding of existing short positions rather than traders establishing new long bets. The data shows that approximately 64,000 BTC worth of open interest was closed out during this stretch, with short positions accounting for 89% of all liquidated dollars.
The options market reflected similar dynamics, ending a streak of 361 consecutive days where puts priced richer than calls. This shift represented a rapid repricing of downside protection as the market scrambled to adjust. Bybit’s volatility index spiked to four times its normal daily range in a single session, while the front of the futures curve repriced sharply against longer-dated contracts that remained stable. The report, which covers data through August 23 across four crypto-native venues excluding CME, suggests the event was viewed as a one-off squeeze rather than a fundamental regime change. Subsequent market activity saw another short squeeze after Bitcoin reclaimed $80,000 following Federal Reserve commentary, liquidating over $230 million in Bitcoin shorts in a single session.
The disconnect between price appreciation and declining open interest highlights a critical distinction between organic demand and mechanical squeezes. When a rally is driven by short liquidations, the buying pressure is involuntary and finite, stemming from margin requirements rather than conviction. The fact that longer-dated futures contracts barely moved while the front end repriced sharply suggests that institutional participants did not view the August surge as a signal of a sustained bull market. Instead, the market treated it as a liquidity event where leveraged bearish positions were flushed out, leaving the underlying sentiment largely unchanged once the immediate pressure subsided.
For market structure, the reliance on crypto-native venues for this analysis underscores the fragmented nature of Bitcoin derivatives pricing. Excluding CME data means the findings reflect the behavior of retail and high-frequency traders who dominate these exchanges, potentially skewing the perception of broader institutional positioning. The recurrence of similar liquidation patterns in September, triggered by macroeconomic news, indicates that the market remains vulnerable to volatility spikes caused by concentrated leverage. Investors should monitor whether the options skew stabilizes with call premiums holding firm; if put premiums return alongside fading funding rates, it would confirm that the previous rallies were transient events absorbed by the market rather than the start of a new structural trend.
