Bitcoin (BTC) Short Bets Rise Despite Price Rally, Setting Stage For Volatility

The Bitcoin market saw another rebound in the past week as prices leaped by over 12% to hit a local peak of $95,600.

The Bitcoin price saw another rebound in the past week as it bounced to hit a local peak of $95,600. Among other interesting developments, blockchain analytics company Glassnode highlighted some observations in the Bitcoin derivative markets.

Bitcoin Short Bets Increase Despite Price Rally

Open Interest (OI) in Bitcoin perpetual futures contracts saw an increment to 218,000 BTC, showcasing a 15.6% surge since early March, Glassnode stated in a recent X post on April 25. In accordance with market activity, this rise in OI coincides with increased leverage, presenting the potential for market volatility through liquidations or stop-outs.

Generally, a rise in Open Interest amid a price rally is expected to signal long-term market confidence. But this time, the narrative appears different. Despite Bitcoin’s bullish strides in the past week, short market positions appear to be dominating the perpetual futures markets. This concerning development is indicated by a decline in the average funding rate, which has now slipped into negative territory to sit around -0.023%.

The perpetual funding rate is a periodic payment between long and short traders aimed at keeping the contract price in line with the underlying spot price. A negative funding rate indicates short traders pay long traders as Bitcoin’s perpetual contract price is trading below the spot price. This is caused by a higher number of short positions as traders are largely bearish about Bitcoin, even despite recent gains.

Furthermore, the 7-day moving average (7DMA) of long-side funding premiums has dropped to $88,000 per hour, reinforcing this short-dominant sentiment. This downtrend indicates a waning demand for long positions, as traders exhibit a short bias.

However, Glassnode presents a bullish note stating that the present combination of rising leverage and short positions paves the way for a potential short squeeze, where an unexpected upward price move forces short-sellers to close their positions, thereby driving prices even higher.

Bitcoin Price Overview

At the time of writing, Bitcoin trades at $94,629 following a 1.01% retracement from its local peak price on April 25. Despite creeping developments in the perpetual futures market, the BTC market remains highly bullish, indicated by gains of 1.02%, 11.12%, and 8.32% in the last one, seven, and thirty days, respectively. With a market cap of $1.88 trillion, the premier cryptocurrency ranks as the largest digital asset and fifth-largest asset in the world.