Bitcoin Breaks $70,000—Is This Just a Short Squeeze? Three On-Chain Indicators to Assess Whether the Rally Can Become a Long-Term Trend

On August 20, 2026, the crypto market staged a dramatic rebound that took short sellers by surprise. Bitcoin (BTC) surged sharply within 24 hours, rallying from a low of around $64,166 to a peak of $70,055.2—the highest level since June 2. As of August 20 (UTC+8), according to Gate market data, BTC traded at $69,385.5, marking a 24-hour gain of 7.97% and a 7-day increase of 9.33%.

Source: Gate market data

This rally was not driven by a single factor. On a macro level, adjustments to the US Treasury’s bond repurchase policy sparked a renewed risk appetite. On a micro level, over $2.7 billion in short derivatives positions were forcefully liquidated, triggering a classic short squeeze cycle. But with prices once again above the $70,000 mark, the market faces a fundamental question: Can this rally transition from a mere "short squeeze" to a genuine "trend reversal" without sustained real spot demand?

Rather than providing definitive price predictions, this piece leverages on-chain data from CryptoQuant and Glassnode to build a trackable and verifiable framework, evaluating the quality and sustainability of the current upswing from three key perspectives.

Dual Engines Behind the Rally: Macro Catalysts and Derivatives Short Squeeze

The current rally can be attributed to two core drivers. The first engine comes from improved macro liquidity expectations. On August 19, the US Treasury announced it would at least double the size of its long-term bond repurchase operations to $4 billion per transaction—aimed at relieving market pressure from high long-term Treasury yields. Against the backdrop of $40 trillion+ in US government debt, markets interpreted this move as a signal of marginal USD liquidity easing. Treasury yields retreated accordingly as risk assets collectively rebounded, with Bitcoin—given its high volatility—outperforming most.

The second engine lies in the structural dynamics of the derivatives market. According to CoinGlass, the past 24 hours saw 172,202 traders liquidated across the network, with short liquidations totaling $2.74 billion—over $1.4 billion of which came from BTC alone. This marks the largest single-day short liquidation in Bitcoin since 2021. The basic mechanism: as prices rise and trigger stop losses, shorts are forced to buy back the underlying asset, which fuels further upward price momentum, in turn setting off additional short stops—a brief but powerful positive feedback loop.

The real difference between these forces is fundamental: macro policy signals act as external shocks, while a derivatives short squeeze is a self-reinforcing market structure. The former can swiftly change sentiment, but the latter has a natural limit—once leveraged positions are unwound, further upside requires fresh spot market buying power.

Metric One: CryptoQuant Spot Demand—What "Converging from Negative" Means

The first gauge for whether a leveraged bounce can evolve into a trending rally is the resurgence of real spot market demand. CryptoQuant’s "apparent spot demand" indicator measures the market’s ability to absorb newly available supply via fresh buying. A positive value signals active absorption of BTC supply by buyers; a negative value indicates selling pressure dominates.

As of August 18, CryptoQuant shows that Bitcoin’s 30-day apparent spot demand has "converged" from roughly -206,000 BTC on July 23 to just about -5,000 BTC. This is the first time since February 26 that the metric has approached zero, suggesting a rapid easing of selling pressure and a supply-demand setup nearing a critical inflection point.

Historical data reveals that when this indicator passes from negative into positive territory, it often marks a structural change in the price trend. CryptoQuant’s historical analysis finds that following the "demand turns positive" signal, Bitcoin’s 60-day average return stands at 18.1%, with a 78% probability of positive gains.

However, a degree of caution is warranted. As of the time of writing (August 20, UTC+8), the metric has not firmly crossed zero. A narrowing of negative demand does not equal the start of real demand. CryptoQuant itself acknowledges that apparent demand is a lagging indicator, and may trail actual market activity by several days. Should it confirm a positive turn in the coming days, it would be a statistically meaningful bullish sign. Conversely, persistent resistance near the zero line would confirm that the spot foundation of this rally remains fragile.

Metric Two: Glassnode Cost Basis—Short-Term Profit Doesn’t Signal a Trend

The second key angle comes from Glassnode’s on-chain cost basis models. The "short-term holder cost basis" is currently estimated at about $68,500—reflecting the average acquisition cost for BTC that has moved in the past 155 days. This serves as a key threshold for measuring the profitability of short-term investors.

As of August 20, Bitcoin’s spot price (around $69,500) has surpassed this level, which means short-term holders are, in aggregate, back in profit. This provides psychological support for market sentiment.

An even more critical metric is Glassnode’s "realized market price," which presently sits around $75,800. This benchmark incorporates on-chain transfer costs for all active BTC and represents the average cost basis for the overall market. When price trades below this level, most circulating supply remains at an unrealized loss.

In its August 20 report, Glassnode made clear: "As long as price remains below the short-term holder cost basis, on-chain valuation models will continue to classify the market as in capitulation… Unless this indicator reclaims 2, all rallies should be treated as local bounces rather than fundamental trend shifts."

From a cost structure standpoint, then, $70,000 does not confirm a trend reversal. The true inflection point lies near $75,000—where the majority of market participants shift from loss dominance to profit dominance.

Metric Three: Realized P/L Ratio—How Far Is 0.75 from 2

The third, and arguably most compelling, metric is Glassnode’s 90-day moving average of the Realized Profit/Loss Ratio, which currently sits at 0.75.

This indicator measures the ratio between total realized profit and realized loss for BTC transferred on-chain. A value of 0.75 means that for every $1 in realized loss, there is only $0.75 in realized profit—loss-making transactions are still the majority.

Glassnode’s historical framework offers vital context: True seller exhaustion typically occurs when the ratio falls below 0.5; a shift from "rebound" to "reversal" requires the ratio to climb back above 2.0. A reading of 2.0 means profitable transactions double those at a loss—Glassnode’s definition of a "trend transition."

With the ratio at 0.75, there’s still a way to go before breaching the exhaustion line at 0.5, let alone the reversal threshold at 2.0. From this vantage, the current rally still fits the mold of a "local bounce." It’s also important to note that, as a 90-day moving average, the indicator is inherently smoothed and lags price activity. A sustained uptick spanning several weeks would be needed for a material shift, even if BTC prices continue to climb short-term.

Conclusion: $70,000 Is a Signal, Not the Final Answer

Summing up these three on-chain metrics, we can draw some interim conclusions about Bitcoin’s current position.

A verified trend reversal hinges on all three of the following:

• First, CryptoQuant’s apparent spot demand must not only turn positive but stay there, rather than just flipping briefly.
• Second, the Bitcoin price must convincingly break and hold above the realized market price of $75,800—not just touch it temporarily.
• Third, the 90-day moving average of the realized P/L ratio must show an upward trend toward 2.0.
  Until all three are in place, the current environment still fits the definition of a "short-squeeze-driven local rally," not the confirmed start of a new cycle.

Short-term risks should not be ignored. If US ETF inflows fail to sustain, Treasury yields climb again once buyback effects wane, or leverage rapidly builds up again after this rally, Bitcoin may test the $68,500 short-term holder cost basis, or even face pressure around the $65,000 range.

For market participants, it’s more valuable to focus on these three quantifiable, verifiable on-chain indicators rather than the psychological significance of the $70,000 price level. Their trajectories tell the true story of this market cycle—far better than any single number.

FAQ

1. What’s the main driving force behind Bitcoin’s break above $70,000?

This surge is powered by a combination of two forces: first, the US Treasury expanding long-term bond repurchase operations, which lifted expectations for USD liquidity; second, a huge wave of short positions in derivatives—totaling $2.74 billion—were force-liquidated, creating a short-covering squeeze. The former is a macro catalyst, the latter a structural market factor.

2. How can I assess whether this rally will last?

Keep an eye on three quantifiable on-chain metrics—(1) whether CryptoQuant’s 30-day apparent spot demand flips firmly positive; (2) whether Bitcoin price can decisively break and hold above the realized market price of $75,800; and (3) whether the 90-day moving average of the realized P/L ratio trends upward toward 2.0. When all three line up, the odds of a true trend reversal rise substantially.

3. What is a "short squeeze" and why does it drive sharp price gains?

A short squeeze occurs when a large number of short sellers are forced to cover (buy back) as the price unexpectedly rises. This buyback action pushes prices even higher, triggering more stop losses and creating a positive feedback loop. Such rallies are often fast and steep, but inherently limited in scale.

4. How does spot Bitcoin ETF fund flow impact the market?

Inflow into spot ETFs represents institutional buying from traditional finance channels—an important component of spot demand. During the week of August 20, US spot Bitcoin ETF single-day net inflows reached as high as $517 million. However, Glassnode notes that the Coinbase Premium Index remains negative, suggesting actual domestic spot buying in the US has yet to fully return. ETF flows need to be cross-checked against other on-chain indicators.