Bitcoin’s strongest price rally in two years did not stem from fresh buying demand, but almost entirely from short positions being forced into liquidation. According to a joint report by Glassnode and Bybit, Bitcoin gained 24.6% in the first five days of August 2026, while active leverage across the market actually declined.
89% of every dollar liquidated during this rally came from short positions, meaning short sellers were forced to buy back Bitcoin to close out their positions, generating forced buying pressure that rapidly pushed prices higher.
Market structure more fragile than it appears
This data is concerning because it indicates the rally lacked a solid foundation of organic demand. When short covering serves as the primary driver, gains can reverse swiftly once forced buying pressure is exhausted. In reality, Bitcoin is currently trading around $81,000, above its pre-rally levels in August, but price action over the past week shows the market remains sensitive to negative news.
Last week, Bitcoin briefly slid below $75,000 after the U.S. Senate rejected the CLARITY Act, legislation aimed at regulating the crypto market, in a 49-50 vote—falling 11 votes short of the 60-vote threshold needed for passage. This represents the crypto industry’s largest legislative setback in the U.S. Congress this year.
Fed raises interest rates for the first time in three years, but not a new tightening cycle
The U.S. central bank raised interest rates by 25 basis points to a target range of 3.75% - 4.00% at its September 17 meeting, marking the first rate increase since July 2023. All 12 FOMC members voted in favor of the move.
However, markets focused more on the dot plot than on the immediate decision itself. The dot plot indicated that the median projected rate anticipates only one more hike, reaching 4.1% by late 2027, implying that this does not signal the start of a sustained tightening cycle. Bitcoin’s initial reaction was relatively subdued, trading around $76,300 immediately following the announcement.
Subsequently, the short squeeze from the prior week combined with the relatively dovish dot plot propelled Bitcoin back above $80,000.
ETFs continue to draw inflows despite market sell-off
One positive sign: net inflows into spot Bitcoin ETFs remained firmly positive even against the backdrop of falling prices. On September 18, spot Bitcoin ETFs logged $433 million in net inflows, led by Fidelity’s FBTC ($311 million) and BlackRock’s IBIT ($108 million). Spot Ethereum ETFs also took in $144 million, driven primarily by BlackRock’s ETHA.
The divergence between declining spot prices and strong ETF inflows indicates that institutional investors continue to accumulate while retail investors sell—a pattern familiar from previous market cycles.
Key factor to monitor: if the next rally continues to rely purely on short covering rather than genuine new buying demand, Bitcoin could face a steeper correction once the squeeze runs out of steam.