Rising Funding Costs Spark Long Squeeze Fears in Bitcoin Derivatives

Bitcoin's derivatives market is showing signs of a curious split, with open interest falling nearly 4% since August 21 and funding costs for long positions rising quickly.

The combination could leave BTC exposed to a long squeeze if traders start rebuilding leverage while maintaining an increasingly bullish bias, according to analyst Axel Adler Jr.

Falling OI meets rising funding is the current state of Bitcoin's derivatives market. Open interest has fallen 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.

Meanwhile, funding tells a different story, 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, pointing to a stronger preference for long positions among active traders.