Crypto Derivatives Funding Rates Hit 3-Year Lows: Reset or Rebound?
After the largest liquidation event in crypto history, funding rates have plunged to 2022-level lows. Analysts say the shakeout could set up a powerful short squeeze for Bitcoin and Ethereum.
Research suggests that integrating traditional derivatives from established markets into crypto exchanges can enhance liquidity, risk management, and market maturity. However, it introduces regulatory complexities and potential barriers for smaller players. It seems likely that this trend will accelerate mainstream adoption of crypto, but evidence leans toward increased scrutiny from regulators like the SEC and EU bodies, potentially slowing innovation for crypto-native startups while benefiting established platforms. Benefits include better hedging tools and legitimacy, but challenges involve compliance costs and competition from traditional finance.
This article will expand upon what CanHav’s Research suggests.
A Massive Flush in Leverage
Over the weekend, billions in leveraged positions were wiped out as traders unwound risky longs on Bitcoin and Ethereum. Glassnode described the event as “one of the most aggressive leverage flushes ever recorded.”
In derivatives markets, funding rates are periodic payments between traders that keep perpetual futures aligned with the spot price. When rates are extremely low or negative, it means short sellers dominate, a sign that traders are betting heavily against price recovery.
At press time, funding rates for Bitcoin (BTC) and Ether (ETH) perpetual swaps remain slightly negative. Data from CoinGlass shows that 60% of accounts are now long while 40% remain short, suggesting bearish sentiment may have peaked.
Shorts May Be Overplaying Their Hand
Historically, extremely low funding rates often mark market bottoms, not tops. As Cointelegraph notes, “too many shorts can set the stage for a short squeeze”, a scenario where rising prices force short traders to buy back into the market, accelerating the rally.
The setup looks familiar. Bitcoin has rebounded more than 5% from its weekend low below $110,000, while Ether has surged over 12% after dipping under $3,800. If the recovery holds, analysts say the combination of cleaned-out leverage and fresh spot demand could ignite a sustained move higher.
‘Crypto Black Friday’: A Record Liquidation Event
According to TradingView, the sell-off wiped roughly $380 billion from Bitcoin’s market cap within hours, the largest single-day liquidation in crypto’s history. Over 1.6 million traders were liquidated, prompting some to dub it “Crypto Black Friday.”
Much of the cascade was triggered by macro news: new U.S. tariffs on Chinese goods announced by President Trump rattled markets, spurring whales to pile into short positions ahead of the drop. The event briefly pushed total crypto market capitalization down nearly 25% before a rapid rebound.
What’s Next
The latest leverage reset may prove healthy for the long-term structure of the market. With speculative excess flushed out and funding rates deeply negative, the stage could be set for a contrarian rally if buying pressure persists.
Analysts caution, however, that macro risk remains. If U.S.–China tensions intensify or liquidity tightens, funding rates could stay suppressed for weeks. For now, traders are watching whether Bitcoin can sustain its rebound above $110k, a move that would confirm this shakeout was more of a reset than a rout.
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