Bitcoin (BTC) Price is Rebounding, and So is the Market for Perpetual Swaps. Here's What That Means.

Bitcoin’s price recovery is being closely followed by crypto traders, and a key metric used to gauge the level of activity in the market for perpetual swaps is showing a sharp increase.

That metric is open interest (OI) and the number is a crude proxy for how many traders are in the market. The chart below shows that, post-CPI (Consumer Price Index implementation of economic policy), we have roughly 281,000 BTC in the Bitcoin perpetual swap OI.

This is way more than we’ve had in quite some time, so what it means (more or less) is that more traders are in the perpetual swap market, period. And that must, of course, mean something. And what it inevitably leads you to is this: the perpetual swap market is not a market that exists in a vacuum. By its very name, it implies a build-up of leverage, because how do you perpetually swap an asset without a lot of leverage being involved? Also, and I can’t stress this enough, the perpetual swap market is now and always has been an essential part of the landscape for Bitcoin traders.

The rise in open interest is a typical feature of price recovery. As prices rise, more and more traders join the fun. The influx of traders means that order flow becomes even healthier. The healthier order flow is, the more likely it is that prices keep going in the direction they’re going in (i.e., recovery); hence, the healthier the price recovery becomes. Open interest, then, is a positive indicator for price recovery.

Short Side Dominates: Funding Rates Suggest a Bearish Sentiment

Even though open interest (OI) has risen, the funding rate in perpetual swap markets has turned negative. The average funding rate has fallen to -0.023%. This means that when perpetual swap traders make payments to each other, the traders on the long side pay the traders on the short side. It also means, apparently, that more perpetual swap traders are betting on Bitcoin’s price to fall rather than to keep rising. That also seems to be what more and more market participants think is going to happen.

A market generally implies positive funding rates when the price is going up, but that’s what you’d expect in a typical market structure, right? Because in a typical market structure, you have long positions in excess of short positions, and the demand for borrowing the asset just pushes the funding rates higher. So the funding rate being negative during a price recovery really shows a divergence from that typical market structure, and it also implies that traders are kind of split on being with or against the rally.

When there is a significant number of short positions that get liquidated, we say that a short squeeze has occurred. This is when the traders who shorted an asset in anticipation that its price would go down are suddenly rushing to buy back the asset that they shorted because the price is going up and they can’t let their loss go on any longer. This action in the market causes the price to go up even more, in a kind of virtuous cycle for the bulls and a vicious cycle for the bears.

Reduced Appetite for Long Positions Adds to Short Bias

More evidence of the prevailing short bias is found in the data for long-side funding premiums. The 7-day moving average (7DMA) of long-side funding premiums has recently drifted down to $88,000 per hour and is still trending downward.

Funding premiums for long positions represent the amount long traders pay to maintain their positions.

A downtrend in a long-side premium is generally seen as a signal that the market is moving against long traders. So, what by now should be a pretty clear picture is this: The funding structure of the Bitcoin market is slanted in favor of short traders.

The reduction in long-side funding premiums may indicate that traders are hesitating to fully commit to long positions as the market remains unsure about the sustainability of the price recovery. Many traders may be holding off on adding to their long positions and instead are maintaining a wait-and-see approach in the hopes that the recent price action matures into a more substantial and lasting bullish trend.

Open Interest in perpetual swaps has risen to 281K $BTC, up +15.6% since early March. This suggests a build-up of leverage in the market as prices rebound, increasing the potential for amplified volatility via liquidations and stop-outs.

— glassnode (@glassnode) April 25, 2025

Increasing open interest, poor funding rates for longs, and lower actual premiums paid by long position holders combine to create a potentially very volatile Bitcoin market. These factors boost the chances for big price moves and, hence, the opportunity to make big profits— or suffer huge losses. And the fact that half of the market is betting against Bitcoin could even mean that the next big Bitcoin move will be upward, as the shorts get stopped out.

What Lies Ahead