Bitcoin perpetual funding rates on major exchanges have flipped negative, signaling that short sellers now dominate the derivatives market and are paying to keep their positions open.
While negative funding typically reflects bearish sentiment, one analyst is interpreting the current extreme as a potential setup for a short squeeze, arguing that excessive short positioning often precedes sharp upside reversals rather than continued downside.
Funding Flips Negative as Shorts Crowd the Market
In a February 27 market update, analyst Amr Taha noted that funding rates across major derivatives venues simultaneously moved into negative territory, with Binance at -0.005%, OKX at -0.007%, and Bybit at -0.011%.
Funding rates are periodic payments between long and short traders in perpetual futures, and when they turn negative, it means short sellers are paying longs, reflecting dominant bearish positioning.
Taha also pointed to data from the BTC liquidation heat map showing dense clusters of leveraged positions above the current price, many originating around the $92,000 level. According to the analyst, if Bitcoin pushes higher, those short positions could be forced to close, accelerating upside volatility.
“If macroeconomic conditions improve, the probability of a renewed price pump in the short to medium term increases,” Taha wrote.
They added that historically, heavy short exposure combined with negative funding has often foreshadowed sharp reversals, though the metric alone does not predict direction.
Meanwhile, retail activity is also ticking up. Nino, a CryptoQuant contributor, indicated that trading frequency among smaller investors has spiked relative to its one-year average, a sign that individual participants are re-entering the market after weeks of caution.
“The current spike underscores a growing sense of anticipation for the next major market expansion,” explained the analyst.
Whale Flows and Market Structure
In a separate post, Taha tracked roughly 1,700 BTC in positive net inflows from so-called “Octopus” wallets, representing medium-term holders, into Binance. A larger 5,000 BTC inflow from the same cohort on February 2 preceded a drop from above $77,500.
This time, the movement, while positive, is significantly less aggressive, suggesting it may not carry the same bearish force.
“Of course, market reaction also depends on liquidity conditions and broader positioning,” Taha stated. “But strictly from the chart data — the intensity is lower.”
Bitcoin briefly tested $70,000 on February 26 but failed to hold that threshold, settling into a range between $66,600 and $68,600 over the past 24 hours per CoinGecko data, with observers at Glassnode saying that despite the relative stabilization, the BTC market is yet to recover.
At the time of writing, the flagship cryptocurrency was trading almost 200 bucks below the $68,000 level, down slightly by 0.4% in the last 24 hours and seeing no change over seven days. However, on a 30-day basis, the asset is nearly 24% lower, and it is also about 46% below its October 2025 all-time high.
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