More than $3 billion in short positions have been closed. Is the cryptocurrency bear market truly over?

Author: Zhou, ChainCatcher

On August 19, the cryptocurrency market suddenly heated up, with Bitcoin surging nearly 8% to near $70,000, breaking months of volatility and marking its biggest single-day gain since March. Ethereum rose nearly 20% that day; cryptocurrency stocks also performed strongly, with Strategy rising nearly 12%, and Coinbase, Circle, and BitMine all rising nearly 10%.

According to Coinglass data, the total liquidation amount on the network reached $2.975 billion that day, with short positions exceeding $2.7 billion. This surpassed the $2.466 billion short liquidation on October 11 last year, making it the largest short squeeze in nearly two years.

As of press time, the total amount cleared across the network in the past 24 hours reached $3.38 billion, of which short selling liquidations exceeded $3 billion. Bitcoin liquidations amounted to approximately $1.76 billion, and Ethereum liquidations amounted to approximately $1.16 billion. 

In summary, the market is primarily driven by two forces.

On the regulatory front, the White House, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) have continued to send positive signals. On the other hand, changes in macro liquidity, with the U.S. Treasury unexpectedly announcing an expansion of its long-term bond repurchase program, directly lowered long-term yields.

However, on-chain data shows that the market is still in a surrender phase that is not yet fully over. Is the cryptocurrency bear market truly over?

White House sends signal

Yesterday, Trump met with a group of regulatory officials and executives from cryptocurrency and fintech companies in the Roosevelt Room at the White House. Attendees included SEC Chairman Paul Atkins, CFTC Chairman Michael Seliger, and representatives from Coinbase, Ripple, Gemini, Robinhood, Chainlink, Polymarket, Kalshi, Nasdaq, the New York Stock Exchange (NYSE), the Chicago Mercantile Exchange (CME), and the DTCC (Decentralized Trading Corporation of America). The meeting also served as preparation for the CFTC Innovation Advisory Committee meeting scheduled for Thursday.

Prior to the formal meeting, Commerce Secretary Howard Lutnick held a small meeting with Coinbase's Brian Armstrong, Ripple's Brad Garlinghouse, a16z Crypto's Chris Dixon, and Kraken's Arjun Seti to discuss how to push for the passage of the CLARITY Act and how to keep cryptocurrency companies and related jobs in the United States.

Trump's rhetoric this time was tougher than ever. He claimed that the government had completely ended the war on cryptocurrencies and that the industry was booming and no one could stop it.

More notably, he mentioned that the government is already discussing large-scale stockpiling of Bitcoin and other crypto assets, even large-scale holdings, believing this could alleviate pressure on the US dollar. However, he did not disclose specific implementation plans, funding sources, or timelines; this is currently only a statement and has not yet been translated into concrete policy.

On the legislative front, he continued to urge Congress to pass a fair version of the CLARITY Act as soon as possible. Regarding the CFTC, he confirmed that Chairman Selig is working to bring Hyperliquid to the US market in a compliant manner, consistent with the CFTC's approach of approving the listing of the first Bitcoin perpetual contract on a regulated exchange. Following the announcement, the price of HYPE surged by over 20%.

Binance founder Changpeng Zhao (CZ) pointed out that many people overlook the big picture; policies don't just benefit one company or project. A policy that benefits the industry will ultimately benefit the entire industry. If platforms like Hyperliquid, which don't require KYC verification, can compliantly enter the US market, it will open doors for the entire industry, allowing more Pper DEXs and decentralized services to reach users in the US and even globally, thus providing US consumers with better liquidity and prices. This will not only benefit Hyperliquid itself but also other platforms, including Binance.

In addition, Jonathan Gould, Comptroller of the Currency, revealed that approval activity related to digital assets has increased eightfold compared to the Biden administration, and the OMC expects to finalize the rules supporting the GENIUS Act by November.

Details of the new rules from the U.S. Securities and Exchange Commission

Just the day before, the U.S. Securities and Exchange Commission formally proposed new regulations for the regulation of crypto assets. The new regulations mainly open up two exemption channels for token financing and include a safe harbor provision.

The first exemption applies to startups. It allows projects to raise up to $5 million in funding over four years without registration under the Securities Act of 1933. This approach lowers the barrier to entry by employing a principle-based narrative disclosure and not requiring financial statements.

The second is the financing exemption, which follows a two-tiered structure similar to Regulation A. The Tier 1 exemption has a financing cap of $20 million every 12 months, requiring disclosure in principle, a discussion of financial condition, and the submission of unaudited financial statements, as well as ongoing reporting obligations. The Tier 2 exemption has a financing cap of $75 million every 12 months, with similar requirements to the Tier 1 exemption, but the financial statements must be audited, and the ongoing reporting requirements are more stringent.

The safe harbor provision is the most critical mechanism in this proposal. Once a project is completed or its key governance activities are permanently terminated, the corresponding tokens can be removed from the definition of an investment contract and are no longer considered securities. This exemption applies at the federal level, simplifying the previously state-specific securities registration requirements.

U.S. Securities and Exchange Commission Commissioner Ueda believes that the new rules replace the previous practice of project teams guessing regulatory red lines, and instead provide fixed thresholds and clear conditions.

It is worth noting that several industry lawyers emphasized that this does not signify a relaxation of regulations. Anti-fraud and anti-manipulation provisions remain in effect, and the U.S. Securities and Exchange Commission (SEC) can continue to enforce relevant laws. Completing the compliance process will incur compliance costs of hundreds of thousands to millions of dollars for all parties involved in the project.

Currently, the proposal is still in the consultation phase, with the consultation period lasting 60 days from the date the relevant notice is published in the Federal Register, and it has not yet become a final rule.

Where are the legislative bottlenecks?

Whether crypto assets should be classified as securities or commodities remains to be seen, and the final decision rests with the Clarity Act, but progress on the bill is currently not optimistic. Data from Polymarket shows that after Trump's remarks, the chances of the bill passing this year have only slightly increased from 20% to 23%.

Senate Majority Leader Thune has submitted a motion to end the debate, setting the vote for September 15. This is only a procedural vote; 60 votes are needed to decide whether to begin formal debate. Republicans currently hold 53 seats and need the support of at least seven Democratic or independent senators, but this is not the final vote on the bill.

Therefore, September 15th is a crucial juncture, not the end. Even if it successfully passes this hurdle, the bill itself still has many thorny issues to resolve.

Last Friday, the U.S. Securities and Exchange Commission (SEC) withdrew a rule exempting tokenized innovation, likely due to concerns that pushing the rule forward at this time would disrupt the pace of congressional negotiations on the CLARITY Act. Brett Redfin, president of securities trading firm Securitize, said the rule would be introduced after the Senate vote on September 15, most likely in early October.

Rob Nichols, president of the American Bankers Association, has publicly called for tightening the provisions regarding stablecoin rewards in the bill, fearing that if stablecoin platforms can effectively pay interest, bank deposits will flow more rapidly into the cryptocurrency sector. Currently, the inclusion of ethics clauses and the text from the Senate Agriculture Committee into the main body of the bill is still under negotiation.

GSR's chief legal officer stated that even if the current government establishes safe harbor and exemption rules, the possibility of a new government overturning existing rules after the next election cannot be ruled out. This is an inherent vulnerability of executive measures relative to congressional legislation.

Debt hits record high, government bond repurchase volume doubles

The current context is that the total U.S. federal debt has exceeded $40 trillion, and the yield on 30-year U.S. Treasury bonds once exceeded 5.3%, reaching its highest level in nearly 20 years.

The U.S. Treasury Department announced that from September 9 to November 4, it will at least double the single operation limit for liquidity support repurchase operations on 10- to 30-year Treasury bonds, from $2 billion to $4 billion.

Following the announcement, yields on long-term U.S. Treasury bonds fell rapidly, with the 30-year Treasury yield dropping by nearly 10 basis points, and the U.S. stock market also rose.

Kendrick of Standard Chartered Bank said that Bitcoin likes this kind of operation because it has always benefited from government liquidity intervention.

Fu Peng, chief economist at Xinhuo Group, believes that the recent joint intervention by the US and Japan has mitigated the risk of a large-scale sell-off of US Treasury bonds by Japan, preventing long-term US Treasury bonds from coming under pressure. Subsequently, the US Treasury doubled the scale of its long-term bond repurchase program, precisely reducing long-term bond yields and term premiums, aiming to prevent a spiral of rising debt interest rates that could trigger a collateral liquidity crisis.

Joint intervention by the US and Japan, along with the inflow of hot money, has collectively suppressed short-term interest rates while artificially lowering long-term rates, resulting in a significantly flatter yield curve. This has supported the valuations of large technology and artificial intelligence companies with strong cash flow and reduced the attractiveness of overseas arbitrage trading.

Strive CEO Matt Cole points out that the US dollar index has been trending downwards for the past 45 years and may be approaching a larger-scale decline. Previous major Bitcoin rallies, including those in 2017, 2020-2021, and 2025, were all accompanied by significant weakening of the US dollar. He predicts that the US dollar may enter a new multi-year decline over the next 3 to 7 years, and if this prediction comes true, the macroeconomic environment for Bitcoin may be more favorable than at any time in history.

Forbes, in discussing the Triffin dilemma, also proposed a similar framework, arguing that Bitcoin, due to its fixed supply and lack of national credit guarantees, may gradually assume the role of a neutral reserve asset. These arguments focus on a 5- to 7-year timeframe; whether this will materialize remains to be seen, and their short-term price relevance is limited.

However, this operation has not been without critics. JPMorgan strategist Jay Barry and others warned that without genuine fiscal consolidation, markets might perceive the Treasury's actions as lacking credibility, potentially leading to higher premiums and yields on long-term bonds. The US economy is nearing full employment, but still has a fiscal deficit of approximately 6%, meaning that relying solely on repurchase operations is only a temporary solution.

Brookings Institution researcher Robin Brooks bluntly points out that this is more like manipulating the yield curve than addressing the root cause of the debt problem. According to BNP Paribas estimates, at the current rate, the Treasury might repurchase approximately $128 billion in related term bonds annually, representing about 30% of the issuance of such term bonds, but only 2.4% of the total outstanding debt in the market, thus limiting its leverage ratio.

Jim Bianco, founder of research firm Bianco Research, joked that in the past, the market often said that the Federal Reserve was panicking and bond traders could stop panicking; now it should be said that Treasury Secretary Yellen is panicking and bond traders can stop panicking.

What is the progress of the on-chain settlement? Is the delivery phase not yet complete?

Given the impact of policies and macro liquidity, what stage are on-chain metrics at?

According to Glassnode's report, Bitcoin's on-chain structure is still in a capitulation phase. The cost base for short-term holders has fallen to approximately $68,500, below the actual market average price of approximately $75,800. The unrealized losses in this capitulation are approximately 25%, significantly lower than the over 60% losses typically seen in previous capitulation cycles.

This means that the losses in this round are relatively shallow, but the holdings are more dispersed, and it may take longer to truly liquidate them.

A more crucial indicator is the 90-day moving average of the profit/loss ratio, currently around 0.75. Analysts point out that historically, this indicator typically falls below 0.5 before genuine selling pressure is exhausted; the fact that it hasn't yet fallen below this value suggests that selling pressure hasn't truly dissipated. Until this indicator breaks back above 2, any price rebound should be considered a localized bounce, not a trend reversal.

Furthermore, analyst Murphy noted that this is the third time Bitcoin has challenged the Short-Term Holders Average Cost Line (STH-RP) since entering a bear market. This line is considered the dividing line between bull and bear markets. The logic is that each time the price approaches this cost line, it stimulates short-term holders with insufficient confidence to accelerate their exit. Therefore, bear markets often see a cycle of prices repeatedly approaching, falling back, and then approaching again, until the price completely breaks through the cost line, exhausting the selling pressure. At this point, the cost line will no longer be able to prevent a trend reversal.

He also mentioned another bear market bottom signal: when the short-term holder cost line falls below the long-term holder cost line, this signal has never failed in the past decade. However, according to the latest data, the short-term holder cost line (STH-RP) has changed by about 0.2% in the past 7 days, while the long-term holder cost line (LTH-RP) has changed by about 0.8%. At this rate, it is unlikely that these two lines will actually intersect in the short term.

Furthermore, the Coinbase Premium Index, which represents the real demand in the US spot market, has remained negative and shows no clear signs of turning positive.

However, data shows that the directional premium in the 30-day perpetual contract market turned significantly negative during the recent decline, but subsequently rebounded sharply and returned to positive territory. This indicates that leveraged longs are willing to pay a premium to re-establish long positions, reflecting an improved speculative risk appetite. The cryptocurrency fear and greed index has now risen to 62, up 16 points from yesterday, while its 30-day average is only 30.

How should we view this rebound?

Based on all the information above, a more objective conclusion is that this surge was driven by regulatory expectations, macro liquidity operations, and short covering, with these factors amplifying each other's impact.

Analysts pointed out that this rise reflects an overcrowded short position in the market, and as prices rose, forced buying to cover further exacerbated the upward trend.

"A single positive candlestick can change people's beliefs." Indeed, many believe that the bottom has been reached or is forming. Wang Chun, co-founder of F2Pool, even bluntly stated that the bear market is over.

Quantitative trader Killa believes that comparing Bitcoin's current pattern to the 2022 bottom, a significant pullback in the short term is unlikely, but Bitcoin may still hold above previous lows and not actually break them. The way to verify this is to observe whether Bitcoin falls back into the previous consolidation range and shows clear signs of weakness on the 4-hour and daily charts; if not, the pattern remains valid.

Optimism from institutional investors is also growing. Matt Hougan, Chief Investment Officer at Bitwise, believes the cryptocurrency market is reassessing on-chain assets that can generate real returns, and the valuations of some protocols are expected to rise as their yield-generating capabilities improve. He stated that Bitcoin is no longer sensitive to negative news, and the bear market may be nearing its end.

He also provided a scale estimate: the four major Wall Street wealth management platforms—Morgan Stanley, Wells Fargo, UBS, and Bank of America—manage a total of approximately $20 trillion in assets. Allocating just 1% to 2% of these funds to the cryptocurrency sector would mean a continuous inflow of hundreds of billions of dollars.

Bitwise Europe's August report also noted signs of accelerating inflows into ETP funds, with supply from long-term holders remaining high, while demand from government bond companies has stabilized. Zach Pandl, head of research at Grayscale, previously stated that the current bear market may bottom out earlier than the traditional four-year cycle.

However, the more cautious side now has a clear core logic, which can be summarized in the following three points:

• On-chain confirmation is still in progress; Glassnode's 90-day moving average of its realized profit/loss ratio has not yet fallen below 0.5, nor has it returned to above 2.
• US spot demand has not yet recovered; the Coinbase Premium Index remains negative.
• The credibility of the Treasury's buyback program is questionable; JPMorgan Chase and the Brookings Institution both worry that it is merely manipulating the yield curve rather than addressing the root cause of the debt crisis.

Regarding the next policy direction, attention should be paid to the vote on September 15th to end the debate on the Clarity Act, and whether the new rules from the U.S. Securities and Exchange Commission (SEC) can be successfully implemented after the comment period ends. Until these signals truly emerge, optimistic policies and loose macro liquidity should be understood as reducing downside risks and improving conditions for a rebound, while a trend reversal still requires further confirmation.