Falling Open Interest Meets Rising Funding: Bitcoin Long Squeeze Looms

Bitcoin's derivatives market is in a state of flux, with open interest falling nearly 4% since August 21 and funding costs for long positions rising quickly. Analyst Axel Adler Jr. notes that this combination could leave BTC exposed to a long squeeze if traders start rebuilding leverage while maintaining an increasingly bullish bias.

According to Adler's latest brief, the derivatives market is still in a deleveraging phase following the short squeeze. However, traders have not rushed to rebuild the amount of leverage that was cleared out during the earlier move.

The current funding rate stands at 0.00906%, with the eight-hour average sitting at 0.00821% and the 24-hour average at 0.00725%. The shorter-term average is already 13% above the 24-hour figure, indicating a stronger preference for long positions among active traders.

Adler warns that if funding continues rising while open interest begins recovering, it could lead to forced liquidations as leveraged longs close. He notes that the shorts have already been burned and now the longs are in the crosshairs.