Bitcoin short-squeeze risk grows as open interest nears $25B

Bitcoin’s derivatives market shows a rising short-squeeze risk after open interest climbed to $24.2 billion, the highest level since early March. Funding rates across major exchanges are at their most negative level since early February. BTC/USD moved past $73,000 on Friday.

CryptoQuant contributors reported that the combination of higher open interest and sustained negative funding points to a crowded market of leveraged short positions. Contributor CoinNiel wrote, “BTC is flowing out of exchanges while funding rates remain strongly negative, creating an increasingly crowded short positioning environment where the potential for a short squeeze is building.” The platform’s data records the open interest figure following the recent price advance.

When funding is negative, short holders pay long holders on perpetual futures contracts. CryptoQuant noted negative funding readings became more frequent in March and remained negative through April, and wrote that the pattern reflects growing short exposure. The group added that a small recent decline in open interest does not yet indicate broad deleveraging.

Contributor Gaah reported funding had reached its deepest negative point since Bitcoin’s early-February low and cautioned that the current price range represents an area of buying demand: “Caution is needed when establishing positions in current range, since it represents an area of buying demand.”

Derivatives tracker CoinGlass recorded cross-crypto liquidations of less than $100 million over the prior 24 hours. That total shows forced liquidations have remained modest despite recent price gains.

Market positioning has shifted in favor of renewed upside. Trader Michaël Van de Poppe posted that large-volume speculators are net long on Bitcoin and compared current positioning to setups before a major breakout in 2023. Some traders are targeting prices above $80,000.

Open interest measures the total value of outstanding derivative contracts. Funding rates are periodic payments exchanged between longs and shorts on perpetual futures to keep contract prices aligned with the spot market. Sustained negative funding alongside rising open interest typically indicates increasing short exposure.

Analysts and market observers continue to monitor on-chain flows, funding rates and open interest for signs of a forced unwind. At the latest count, liquidation totals remained modest and a large-scale forced unwind had not occurred.