Rising Funding Costs and Falling Open Interest: Bitcoin Long Squeeze Looming

Bitcoin's derivatives market is experiencing a curious split between open interest and funding costs. According to analyst Axel Adler Jr., this combination could leave BTC exposed to a long squeeze if traders start rebuilding leverage while maintaining an increasingly bullish bias.

The derivatives market is still in a deleveraging phase following the short squeeze, with open interest falling from 331,100 BTC on August 21 to 318,600 BTC on August 31, a decline of 3.8%. Over the past 24 hours, another 2,850 BTC has left open positions.

Funding costs tell a different story, however, with the current funding rate at 0.00906%, while the eight-hour average sits at 0.00821% and the 24-hour average at 0.00725%. The shorter-term average is already 13% above the 24-hour figure.

This means that traders have not rushed to rebuild the amount of leverage that was cleared out during the earlier move, but are instead maintaining an increasingly bullish bias within a smaller derivatives market.