Bitcoin (BTC) Has Stretched Its Legs After a Textbook Short Squeeze. Will It Break Out or Roll Over?

Bitcoin (BTC) recent price action has caught many off guard, with a powerful bounce emerging from heavily oversold conditions.

Bitcoin (BTC) has surged in recent days, largely on the back of a textbook short squeeze, but now finds itself at a decisive resistance zone that could determine whether the recent bounce has more legs or if a reversal is brewing.

As the cryptocurrency descended to new lows, bearish sentiment reached extreme levels, with many traders positioning for further declines and placing short trades. This heavily skewed sentiment and crowded trading set the stage for a potential short squeeze.

With BTC approaching recent lows, bearish sentiment was certainly at its peak, and many traders were heavily short. This type of positioning and pessimistic outlook usually leads to short-term bounces, especially when they occur at heavily oversold levels, as we saw in mid-December.

As the price began to bounce, short positions were forced to cover, especially if they were leveraged or had close-knit take-profit levels. This, in turn, fueled an exaggerated upside move, setting the stage for a vicious short squeeze.

However, this scenario usually isn’t sustainable unless it’s accompanied by real demand in the form of fresh spot volume, especially at higher price levels.

Key technical levels to consider

The rally began at a time when bearish sentiment was nearly at its peak, with many traders heavily shorting Bitcoin as it approached recent lows. This type of massively crowded positioning usually triggers a chain reaction, especially if it’s leveraged.

As the price began to bounce, short positions were forced to cover, especially if they were leveraged or had close-knit take-profit levels. This, in turn, fueled an exaggerated upside move, setting the stage for a vicious short squeeze.

However, this scenario usually isn’t sustainable unless it’s accompanied by real demand in the form of fresh spot volume.

Now, Bitcoin is testing several key resistance levels in one cluster. The most important of these include the $98,300 level, the descending trendline that has defined recent price action, and the 0.618 Fibonacci retracement from the previous swing high.

This confluence zone is also aligned with the daily imbalance area and the point of control, making it a high-risk location for potential reversal.

A clean rejection here could confirm this rally as simply a short squeeze top, opening the door for another leg lower. But if Bitcoin consolidates around this resistance zone and breaks above it with sustained volume, then the structure could shift into a genuine bullish continuation.

Adding to the concern, this rally has occurred during a period of thin liquidity and limited spot market interest. Without real demand behind the move, the sustainability of higher prices remains questionable. Smart money often fades these types of rallies unless they are confirmed with follow-through volume and clear support reclaim.

What to expect in the coming price action

All eyes should remain on the $98,300 level. A clear reclaim and close above this zone would flip resistance into support and suggest that bulls are taking control.

Until then, traders should remain cautious, as failure here could send Bitcoin back toward lower support levels. Expect volatility and watch closely for a confirmed rejection or breakout.