Bitcoin jumps above $81k as short squeeze offsets rate and regulatory pressure

Bitcoin surged past $81,000 on Saturday as short sellers hastily exited positions and renewed interest in spot Bitcoin drove demand, reversing losses sparked by higher interest rates and a setback for U.S. cryptocurrency legislation. After trading near $76,400 the previous day, Bitcoin climbed to a peak of $81,702 on September 18, its first time above $80,000 since September 7.

The digital asset was trading at $81,309.4 as of 10:50 PM ET (06:50 AM GMT), marking a 5.62% gain for the day. The recovery followed a challenging week for risk assets. The Federal Reserve increased interest rates by 25 basis points, and the Bank of Japan matched the rise with a quarter-point increase to 1.25%, marking the highest policy rate in 31 years.

Initially, Bitcoin's value dropped towards $75,000-$76,000, but the anticipated market sell-off after the BOJ decision did not occur. U.S. spot Bitcoin exchange-traded funds recorded approximately $159 million of inflows on September 17, adding to the newfound spot demand. A significant short squeeze then accelerated the rally from the previous Friday.

Around $192 million of leveraged crypto positions were liquidated within an hour, with over $183 million in short positions. Bitcoin shorts accounted for about $119 million of the total liquidations. Regulatory uncertainty remains a focal point after the U.S. Senate failed to approve the CLARITY Act this week. The CFTC subsequently submitted a separate proposal for crypto market regulation to the White House Office of Management and Budget, although the details have not been disclosed.

The SEC introduced an innovation exemption, allowing approved platforms to offer on-chain trading of certain tokenized stocks without registering as securities exchanges. The CFTC also issued relief permitting specific software providers to connect users to regulated derivatives markets without registering as introducing brokers, under certain restrictions.

Market positioning suggests cautious optimism following Bitcoin's rebound. Traders assigned an 84% probability to Bitcoin reaching $84,000 before declining to $55,000, with confidence decreasing at higher levels. Polymarket traders estimated a 59% chance of Bitcoin reaching $90,000 this year, but only a 25% probability for $100,000.

Conversely, the platform assigned a 48% probability to Bitcoin touching $70,000 before the end of the year. Other major cryptocurrencies also experienced gains on Friday. Ethereum climbed 6.37% to $2,619.81, while XRP rose 8.97% to $1.4238. Solana increased 10.54% to $113.57, and BNB edged 1.78% higher to $762.00. Cardano grew 8.93% to $0.2330, and Dogecoin gained 6.62%. Among meme coins, TRUMP remained flat, while Shiba Inu gained 3.98%.