The current market has significantly reduced leverage, decreasing the likelihood of a sharp decline, but at the same time limiting the potential for upward short squeezes#加密市场上涨

On March 5, independent crypto analyst Axel posted that the Bitcoin perpetual contract funding rate chart shows that throughout February 2026 and early March, the funding rates remained in negative territory, indicating that short positions dominated the perpetual futures market.

Since late January, the funding rate has frequently dipped into negative territory, and over the past two weeks, it has remained there with little to no rebound. The most extreme readings occurred on February 25 and February 28—days when prices tested local lows around $64,000 to $65,000. As of March 4, the rate was still slightly negative, but the two-week accumulation of negative funding rates suggests that short positions continue to be prevalent.

A negative funding rate means that short position holders pay long position holders to maintain their contracts, indicating a bias toward shorts. Historically, this situation either signals that any upward momentum could trigger a short squeeze or, if the decline persists, confirms a bearish trend. A key trigger for a sentiment reversal would be a sustained return of the funding rate to positive levels, combined with prices consolidating above a key resistance level (around $70,000) and open interest stabilizing or increasing.

Additionally, the open interest chart for Bitcoin futures denominated in USD shows a decline from a peak of $47.6 billion in October 2025 to $20.8 billion in March 2026. This decrease can partly be explained by falling BTC prices, but overall, it indicates a reduction in derivatives leverage during the correction period.

The open interest in USD-denominated futures has fallen by more than half from its October 2025 peak ($47.6 billion) and is about one-third below the high of $32 billion in January. As of March 4, open interest stood at $20.8 billion, a level not seen since before the rally in 2025. Over the past week, open interest has decreased by another 3.2%, indicating deleveraging continues, albeit at a slower pace.

Open interest declining with falling prices signals forced or voluntary liquidations, meaning the market is indeed shedding leverage. This distinguishes the current situation from a typical short squeeze scenario, as lower open interest levels generally mean less mechanical fuel for cascade liquidations, though localized short squeezes could still occur. The risk of further cascading liquidations is lower than in January.

Overall, these two indicators paint a more nuanced picture than it might seem at first glance: leverage has exited the market (open interest dropping from $47.6 billion to $20.8 billion), but remaining participants mainly hold short positions (negative funding rates). This combination reduces the risk of downward cascade liquidations but also limits the potential for spontaneous short squeezes—less fuel remains in the system.