Funding rates across crypto derivatives markets have plunged to their lowest levels since the depths of the 2022 bear market, as short sellers piled in over the weekend.
On-chain analytics firm Glassnode reported the steep drop on Sunday, calling it “one of the most severe leverage resets in crypto history.” The firm noted that the move highlights “how aggressively speculative excess has been flushed from the system.”
Funding rates — the periodic payments between traders in perpetual futures contracts — are designed to keep the contract’s price aligned with the spot market. When these rates turn extremely low or negative, it signals that short positions outnumber longs, suggesting traders expect further price declines and are willing to pay to maintain their bearish bets.
However, such low funding rates can also set the stage for a bullish reversal. With so many shorts in the market, even a modest price uptick could trigger a short squeeze, propelling prices higher as bearish traders rush to cover their positions.
The market appears to be rebounding, with the CoinGlass long/short ratio turning bullish. According to the latest data, around 54% of traders are bullish or very bullish, 16% remain neutral, and 29% are still bearish. Long positions now account for 60% of total trades, compared to 40% short, according to CoinGlass.
Despite this shift in sentiment, funding rates remain slightly negative across Bitcoin and Ether perpetual swaps, suggesting cautious optimism among derivatives traders.
Meanwhile, spot markets have bounced back sharply. Bitcoin (BTC) has risen over 5% since dipping below $110,000 on Sunday, while Ether (ETH) has surged 12% after falling under $3,800.
The largest liquidation event in crypto history
In what many are calling “Crypto Black Friday,” the market witnessed the largest leverage flush in history, as nearly $1 trillion in total crypto market capitalization briefly plunged 25% within hours, according to TradingView.
Whales reportedly built up heavy short positions ahead of the downturn, following U.S. President Donald Trump’s announcement of new tariffs on China on Friday. When the selloff began, it triggered a cascade of liquidations — 1.6 million leveraged long traders were wiped out in the process.
The extreme volatility even led to the first-ever $20,000 red candlestick in Bitcoin, erasing about $380 billion from its market cap before a sharp V-shaped rebound as shorts were forced to close, according to The Kobeissi Letter.
This liquidation was not only the largest in crypto’s history, but nine times greater than the previous record. Analysts note that such leverage flushes, while dramatic, often serve a crucial role in resetting overheated markets and restoring healthier trading conditions in the crypto derivatives space.
