This level of deep shorting has not been seen in Bitcoin since August 2024, a period that ultimately reached a major bottom before a strong multi-month recovery. Bitcoin traders are now back to this level, and history shows that such extreme positioning occurs can create the conditions for a rally.
Funding rates show bearish positioning for Bitcoin
Santiment’s “Funding Rates Aggregated by Exchange” Metrics combine financing data from multiple major exchanges to provide a good overview of market sentiment and positioning pressure in the crypto industry.
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Financing rates are a mechanism used in perpetual futures markets, where traders pay each other small fees at regular intervals to keep contract prices in line with spot prices. When the financing rate is negative, short sellers pay long traders. If they are positive, longs pay shorts.
The latest chart data from Santiment shows that financing rates are now in negative territory, with red bars dominating the lower portion of the chart. The funding rate is now less than -0.01%, showing that a significant portion of derivatives traders are on a downtrend.
More often than not, financing rates are positive, as shown in the diagram below. According to Santiment, the last time derivatives financing reached a similarly extremely negative level was in August 2024.
At the time, traders were aggressively shorting Bitcoin after a notable price crash. However, instead of falling further, Bitcoin’s price action reversed sharply. Short liquidations contributed to a roughly 83% rally over the next four months as positions were forced to close.
A similar situation occurred after Binance’s major liquidation on October 10, 2025, when billions of dollars in long positions were wiped out. In the aftermath, traders turned sharply bearish and took short positions.
Extreme short circuits can lead to crushing
Extreme negative financing is a reflection of fear-based positioning. All that needs to happen for a short squeeze is for the Bitcoin price to move slightly higher.
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If the price moves higher unexpectedly, you can use leveraged shorts losses start to pile up at a rapid pace. Once these losses exceed liquidation thresholds, exchanges automatically close these positions. Traders have to buy back Bitcoin to cover their positions, and this in turn puts upward pressure on the price.
At the time of writing, Bitcoin is trading at $68,740, but the short-term cost basis is around $90,900. A strong push and close above $75,000 could build bullish momentum and attract new inflows, increasing the likelihood of a short squeeze. However, only heavy short circuits do that no guarantee for an immediate recovery, although it does create a fragile environment where positioning pressure can quickly turn into sharp upside volatility.
Featured image from Getty Images, chart from Tradingview.com
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