History generally has a way of repeating itself.
The current price pattern in the bitcoin market is eerily similar to the one observed in the run-up to a major rally that occurred on April 12.
To start with, bitcoin charted a long-tailed candle on Aug. 14, similar to the one seen on Apr. 1, signaling the sell-off from the July 24 high of $8,507 has likely run its course.
Further, the leading cryptocurrency has spent last seven days trading in a sideways manner around $6,400. Back in April, the cryptocurrency traded around $6,800 in the first 11 days before rising sharply above $8,000 on Apr. 12.
More importantly, during the bitcoin price consolidation in early April, the BTC/USD shorts on Bitfinex jumped more than 44 percent to print a record high of 40,719 and fell sharply on April 12, meaning the big spike in BTC was likely fueled by the unwinding of short positions.
Interestingly, the short positions on Bitfinex currently stand at $38,640 - the highest level April 12 - and are just short of the record high of 40,719, as seen in the chart below.
BTC/USD Shorts on Bitfinex
Daily chart 
As seen in the chart above, BTC is repeating the price action seen in early April. Even the relative strength index (RSI) is positioned exactly where it was ahead of Apr. 12. So, the question now is will bitcoin repeat the history by producing a $1,000 rally in the next few days?
In theory, a sharp rise in short positions during price consolidation is considered a sign the market is preparing for another round of sell-off.
However, in BTC's case, the consolidation is happening after a 30 percent drop, meaning the cryptocurrency is oversold. Add to that the extreme bearish positioning, as indicated by the near record high BTC/USD shorts, and there is always a risk of a short covering rally.
So, it seems safe to say history will likely repeat itself.
View The BTC market is looking similar to the one seen in the first 11 days of April. The cryptocurrency may consolidate for another day or two before rising sharply toward $7,000. A close below $6,000 (February low) would weaken the odds of BTC repeating the history and would shift risk in favor of a drop to June low of $5,755.Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; Charts by Trading View
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