Bitcoin Approaches $70,000: Over $500 Million Short Positions Liquidated and Analysis of Crypto Market Structure Recovery

On February 26, 2026, the cryptocurrency market experienced a significant rebound. According to Gate行情 data, Bitcoin (BTC) rose 0.74% in the past 24 hours to $68,487.8, approaching the $70,000 mark intraday; Ethereum (ETH) performed even stronger, up 7.92% to $2,071.09, returning above the $2,000 psychological level. The rapid upward market movement directly triggered a wave of liquidations in the derivatives market. Coinglass data shows that total liquidations across the network in 24 hours reached $576 million, with short positions contributing $468 million, accounting for over 81%. This brief but intense short squeeze has sparked widespread discussion: is it a sign of trend reversal or merely a technical rebound during leverage unwinding? This article will analyze the event itself, breaking down the underlying data structures and market logic layer by layer.

Market Anomaly: From Continuous Selling Pressure to Short Squeeze

Event Overview

From February 25 to 26, after several days of decline, the crypto market saw a broad rally. Bitcoin rebounded strongly from around $62,000, reaching a high of $69,487; Ethereum started near $1,800, with a sudden surge exceeding 12%. This acceleration was not due to gentle volume increases but was catalyzed by forced liquidations in the derivatives market. According to Coinglass, liquidations related solely to Bitcoin amounted to approximately $195 million, making up the majority of total liquidations. The largest single liquidation order occurred on the Hyperliquid platform for the BTC-USD trading pair, valued at $10.41 million.

Cryptocurrency market liquidations. Source: Coinglass

Background and Timeline

This rebound occurred within a specific market structure context. Just a week prior, Bitcoin had fallen below $63,000, with market sentiment approaching a low point. Glassnode data shows that about 45% of circulating Bitcoin was underwater—that is, current prices were below the holders’ average purchase cost—indicating significant potential selling pressure. Meanwhile, funding rates in the derivatives market had been negative for several days, signaling dominance of short positions, with leveraged traders betting on further declines. This crowded short and spot reluctance to sell often create a fertile ground for short squeezes.

Data Breakdown: Micro Mechanisms of the Short Squeeze

From a data perspective, the core driver of this rebound was not active buying in the spot market but passive unwinding of short positions in derivatives. XWIN Research Japan pointed out that open interest (OI) declined significantly as prices rose, clearly indicating that the rally was driven by short covering rather than new long entries. This pattern has appeared multiple times historically—when short positions are overly crowded, even slight spot buying can trigger a chain reaction: rising prices cause liquidations, which force buy-ins, further pushing prices higher, creating a positive feedback loop.

Notably, Ethereum’s increase (+7.92%) was much larger than Bitcoin’s (+0.74%), and its liquidation amount ($175 million) dominated its total liquidations. This reflects differences in leverage distribution across assets: Ethereum had accumulated more aggressive short positions during its prior decline, making it more susceptible to squeeze during the rebound. Additionally, mainstream altcoins like DOGE and SOL gained 8% to 10%, further indicating a short-term rotation of capital from core assets to higher-beta tokens.

Narrative Examination: The True Drivers Behind the Rebound

Market interpretations of this rebound vary. Some see it as a sign of capitulation capitulating, while others remain cautious.

The mainstream narrative suggests: the spot Bitcoin ETF saw a net inflow of $257 million on February 25, the largest single-day inflow since February 6. This indicates institutional funds are beginning to view Bitcoin as a viable asset at around $60,000, and continued inflows could support mid-term prices.

However, skepticism exists because on-chain data does not show structural demand improvement. Binance’s Bitcoin flow ratio remains low at 0.012, indicating that exchange inflows are not significantly increasing. XWIN Research Japan emphasizes that when leverage remains suppressed, price increases are more likely driven by forced liquidations rather than genuine demand expansion. In other words, this rebound is fragile: without sustained spot buying to replace derivatives unwinding, prices could stall or even decline rapidly.

Industry Impact: Leverage Deleveraging and Market Health

From an industry perspective, this large-scale liquidation has a dual significance for market health.

On one hand, deleveraging in derivatives is necessary. Since 2025, high leverage in crypto has been a systemic risk factor; excessive leverage can cause flash crashes during external shocks. The liquidation of over $500 million in leveraged positions objectively reduces systemic risk.

On the other hand, this rebound does not address the core liquidity issues. Matrixport notes that stagnant stablecoin supply remains a key constraint on Bitcoin’s continued rise. Market maker Wintermute also states that some funds are shifting toward defensive and physical assets, and overall market liquidity recovery remains slow. Without additional capital inflows, upward price movement may be limited.

Scenario Analysis: Three Possible Paths After the Rebound

Based on current market structure and on-chain data, three potential evolution paths are projected:

Scenario 1: Sideways Consolidation (Higher Probability)

If prices stabilize around $68,000, funding rates return to neutral, and spot ETF inflows remain modest, the market may enter a consolidation phase. Glassnode suggests that overall liquidity might take months to fully recover. During this period, prices are likely to fluctuate between $60,000 and $72,000, awaiting new macro catalysts or structural demand revival.

Scenario 2: Double Bottom (Medium Probability)

If the rebound fails to hold above the 20-day exponential moving average (around $69,375), and volume fails to follow through, a retest could occur. Technical analysis indicates that if Bitcoin drops below the annual low of approximately $62,795, a downtrend could resume, with next support around $57,885.

Scenario 3: Trend Reversal (Lower Probability)

A true trend reversal would require multiple conditions: Bitcoin breaking above $74,508 with volume, ETH stabilizing above $2,540, and stablecoin supply resuming growth. Currently, these conditions are not met. 10x Research notes that this rally was mainly driven by position imbalance; subsequent market logic will likely revert to fundamentals.

Conclusion

On February 26, the market rebounded with over $468 million in short liquidations, pushing Bitcoin close to $70,000 and Ethereum back above $2,000. Divergent views interpret this as either capitulation capitulating or a technical short squeeze. Based on on-chain and derivatives data, the current rally appears primarily driven by leverage unwinding rather than genuine demand improvement. The market remains in a phase of oscillation and recovery. For investors, recognizing the nature of the rebound is more important than chasing prices. Until liquidity truly returns, maintaining cautious observation of market structure may be the best strategy to navigate uncertainty.