Why Are Bitcoin Traders Actively Short Selling When BTC Reaches New Record Highs?

Bitcoin {BTC} surged to a new all-time high of over $110,000 on Thursday, liquidating about $500 million worth of derivative positions thereafter, but some traders do not believe in the bullish sentiment. The trading volume surged 74% in the past 24 hours as traders attempted to position themselves; however, most of these traders are choosing to short -- or bet on the price of Bitcoin falling. Coinalyze data shows that the long/short ratio is at its lowest level since September 2022, during the middle of the crypto winter. This trend started on April 21 when traders actively shorted as the price surpassed $85,000, seemingly with the thought that Bitcoin had formed a cycle peak and any subsequent movement would also form a double top. However, despite the lack of participation from retail investors, Bitcoin continues to rise, surpassing resistance levels of $97,000 and $105,000 along the way. This move may be due to several factors; the recovery of U.S. stocks as concerns about tariffs eased, increased activity from institutions on exchanges like CME, and importantly, the strong increase in short positions to push prices higher. Although these short positions may be seen as a bearish trend in terms of market structure, in reality, they ignite the upward flame as they provide optimistic traders with areas to target and execute stop-loss hunts as we saw earlier this week. Short selling at a record high of an asset is not necessarily a bad strategy; a trader will often choose to enter a short position at a resistance level, whether it is technical or psychological resistance, and apply a stop-loss at a level where the thesis for the short trade would be invalidated. In this case, if a trader shorts $105,000 on each test of BTC in that area, they could close their position at a profit three times at $102,000, meaning that even if they get stopped out at $109,000, it is still a profitable week. Along with the continuous increase in short positions, we have seen open interest rise asymmetrically with BTC. In the past 24 hours, BTC has increased by 4.8% while open interest has risen by 17% despite hundreds of millions being liquidated. This indicates that the record-breaking level is due to leverage and may be less sustainable than the initial rise above $100,000 in December and January. People still have to wait and see whether interest in short positions will continue to rise if BTC continues its strong upward trend above the $111,000 level, but there is certainly a minefield of short positions that need to be exploited if more ammunition is needed.