Short Squeeze Fades, Bitcoin Stalls at $80K: Sovereign Yield Highs Lock Range

Original author: Glassnode

Original translation: AididiaoJP, Foresight News

After the mid-August short squeeze, the market briefly rallied, then Bitcoin stalled below long-term overhead supply. Sovereign bond yields hit new cycle highs, ETF secondary turnover remained subdued, and price fell back into a well-defined range.

Key Takeaways

• The August short squeeze rally pushed spot near $80,000, where it met expected overhead resistance.
• When price retested the same level as May, on-chain unrealized supply rose from 65% to 68%, indicating heavier potential selling pressure after summer redistribution.
• Spot Bitcoin ETFs absorbed an average of $290 million daily at peak, but secondary market daily volume remained around $3 billion, resembling news-driven pulses lacking sustained momentum.
• Macro pressure returned: the US 10-year Treasury yield rose to 4.8%, erasing all the relief from Treasury buybacks in just eight trading days.
• Short-term options skew cooled with sentiment; the September 25 quarterly expiry forms a roughly $14 billion open interest barrier.

After the Squeeze: Rejected Below the Wall

The previous weekly report noted that the August 19 short squeeze cleared significant leverage, but the rally was colliding with dense overhead structure. That played out last week. On August 27, price spiked above $80,000, met persistent supply, fell back to around $76,000, and triggered a series of long liquidations.

The futures liquidation heatmap shows price sandwiched between two structural zones. The upward impulse consumed shorts along the way but did not reach the dense short liquidation band between $83,000 and $86,000; below spot, the long liquidation fuel between $60,000 and $63,000 remains intact. Price is currently trapped between these two boundaries.

On-Chain Supply: Unrealized Gains Overhang

The hidden friction in this rally lies in the network's profitability structure. In May, when Bitcoin was around $78,000, about 65% of supply was in profit; by late August, spot returned to the same price, but the percentage in profit had risen to 68%.

The change stems from summer accumulation—short-term holder cost basis was reset to around $71,000. At the same nominal price, a larger pool of profitable coins can be activated, creating thicker potential seller liquidity if spot retests previous highs.

Overlaying on-chain cost models with distribution, the range boundaries are clear: below spot, summer consolidation formed a solid accumulation base between $62,000 and $65,000; above, long-term holders have heavy positions stacked between $83,000 and $86,000. Spot remains locked between these two zones.

Institutional Channel: Subdued Turnover

US spot Bitcoin ETFs continued to attract inflows during the rally, with the 7-day average net inflow rising to $290 million per day. But secondary trading was quieter: ETF daily volume held around $3 billion, far below previous expansion phases. Inflows driven by a single policy news event but lacking broader market velocity often correspond to local turning points—once the catalyst passes, price tends to give back gains.

Macro Backdrop: Sovereign Yield Rebound

The macro environment quickly tightened again. On August 19, Treasury buyback news briefly pushed the 10-year yield to around 4.6%, then it sharply reversed. Over the next eight trading days, the yield returned to 4.8% and printed a new cycle high. The speed of the reversal shows that sovereign debt stress remains the primary driver of global discount rates.

Early in the rebound, Bitcoin briefly decoupled from traditional equity indices, with US stocks trading sideways. Over a rolling 30-day window, the correlation between Bitcoin and the S&P 500 slid toward zero. Historically, sudden decorrelation during sovereign bond selloffs is usually short-lived, more like local exhaustion than a structural regime shift.

Derivatives and Expiry: Sentiment Cools from Euphoria

The options market recorded a sharp psychological shift over the past two weeks. The 7-day 25-delta skew index spiked during the squeeze as the market chased call options; after resistance held, the indicator quickly mean-reverted toward neutral. The 180-day skew remained stable throughout, indicating short-term enthusiasm cooled but long-term options demand structure did not dissipate.

The forward options landscape is dominated by the September 25 quarterly expiry, with Deribit and IBIT combined open interest around $14 billion. Large positions are concentrated at strike prices above $80,000, making the upcoming quarterly expiry a key anchor for volatility and positioning in the coming weeks.

Conclusion

The post-short-squeeze recovery rally stalled below the $83,000–$86,000 supply band. At the same price, network profitability is higher, sovereign yields hit cycle highs, and the options market returned to neutral—the market remains framed by the existing range. Until the overhead ceiling is absorbed, the $62,000–$65,000 structural base is the primary downside reference.