Crypto derivatives funding rates plunged to levels not seen since the 2022 bear market after a historic deleveraging wiped out billions in leveraged positions; this signals heavy short positioning but also raises the chance of a rapid short squeeze that could push BTC and ETH prices higher.
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Funding rates dropped to 2022 lows, reflecting a major leverage reset across perpetual futures.
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Mass liquidations removed speculative excess—1.6 million long positions were closed, per market reports.
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Spot markets saw a sharp rebound: BTC rose over 5% and ETH regained roughly 12% after the sell-off.
Crypto derivatives funding rates plunged to 2022 lows after a historic deleveraging; learn what it means for BTC and ETH and how traders can respond — COINOTAG.
Published: 2025-10-13 | Updated: 2025-10-13 | By COINOTAG
What are crypto derivatives funding rates?
Crypto derivatives funding rates are periodic cash transfers between traders in perpetual futures contracts meant to align the contract price with the spot market. When funding rates turn low or negative, it signals a dominance of short positions and elevated bearish sentiment in derivatives markets.
How do negative funding rates arise and why do they matter?
Negative funding rates occur when traders betting on price declines (shorts) outnumber longs, causing short-side participants to receive payments or longs to pay. According to Glassnode, the recent plunge reflects “one of the most severe leverage resets in crypto history,” a clear indication that speculative excess was rapidly removed from the market. This dynamic is important because it both reflects current market bias and creates the structural conditions for a rapid reversal if price momentum shifts.
Too many shorts could launch prices upward
Paradoxically, extreme negative funding can be bullish. With a preponderance of shorts, a modest price uptick can force short-covering and liquidations, generating accelerated buying pressure known as a short squeeze. Market analytics from CoinGlass show a long/short sentiment tilt that has recently moved toward bullishness: roughly 54% of sentiment is bullish or very bullish, 16% neutral, and 29% bearish. CoinGlass also reports long accounts around 60% versus 40% short at the time of reporting.
Funding rates plunged to 2022 lows. Source: Glassnode
What happened during the recent deleveraging?
Over a single weekend, billions of dollars in leverage were liquidated across derivatives platforms. TradingView and market reports describe a near-trillion-dollar wick off total crypto market capitalization that erased roughly 25% in hours. The cascade closed about 1.6 million leveraged long positions, a level market commentators called the largest liquidation event ever recorded. The Kobeissi Letter documented a dramatic $380 billion drop in Bitcoin’s market cap at one point and noted a historic $20,000 red candlestick amid the flush.
How did markets react immediately after the flush?
Spot markets recovered quickly. Bitcoin climbed more than 5% from its intra-session low below $110,000, while Ether rose roughly 12% after dipping below $3,800. Perpetual swap funding rates remained slightly negative for both BTC and ETH at the time of reporting, but the rapid spot rebound reduced immediate downside pressure. This behavior is consistent with a leverage reset that initially accelerates volatility and later restores more sustainable positioning.
Frequently Asked Questions
What caused funding rates to fall to 2022 levels this week?
The fall was driven by a mass deleveraging across perpetual markets as traders piled into short positions ahead of macro headlines. On-chain and derivatives analytics providers such as Glassnode and CoinGlass recorded the rapid unwind; TradingView documented the corresponding market-cap wick. The event closed millions of leveraged longs and reset speculative positioning.
How likely is a short squeeze after such a leverage flush?
A short squeeze is a meaningful risk when funding rates are deeply negative and spot markets show signs of buying momentum. With a majority of accounts on CoinGlass turning long and a strong spot bounce visible, even moderate buying could trigger rapid short-covering. Traders should monitor funding rates, open interest, and spot liquidity closely.
Key Takeaways
- Severe leverage reset: Funding rates hit 2022 lows as billions in leveraged positions were liquidated, removing speculative excess.
- Shorts dominate but risk reversal: Negative funding rates indicate heavy shorting but also create short-squeeze potential if prices rise.
- Monitor metrics: Traders should track funding rates, long/short ratios, open interest, and spot liquidity to gauge risk and opportunity.
Conclusion
Crypto derivatives funding rates have dropped to levels last seen in the 2022 bear market, marking a historic leverage reset that both signals dominant short sentiment and raises the probability of a rapid upside reversal if buying pressure resumes. Authoritative market analytics—Glassnode, CoinGlass, TradingView and commentary from the Kobeissi Letter—corroborate the scale of the event. For traders and investors, the immediate focus should be on funding rates, open interest and spot momentum to assess whether the current environment is a lasting trend or a setup for a short squeeze. Stay informed with COINOTAG for ongoing coverage and data-driven analysis.
Sources (plain text): Glassnode, CoinGlass, TradingView, The Kobeissi Letter.
