According to crypto research firm K33 Research, there are signs of an increasing risk of a short squeeze in the derivatives market that could trigger sharp rallies in Bitcoin.
The company, which tracks the funding rates of Bitcoin-based futures contracts, pointed out that the seven-day average annualised funding rate is at its lowest level since March 2023, when bank failures in the US shook the market.

According to Bloomberg, in the note published by company analysts Vetle Lunde and David Zimmerman, “Perpetual swap funding rates have averaged at negative levels over the past week, while open interest has sharply increased. This suggests aggressive shorting, structurally creating a setup ripe for a short squeeze.” they commented.

Stating that the size of the open position increased by the equivalent of 29,000 BTC last week, while the average funding rate was minus 2.5% yesterday, analysts said, ‘In addition to the negative funding rate, such a rapid increase in open positions is a relatively rare situation.’

Short squeeze refers to the rapid rise in the price of an asset in financial markets, as a result of the rapid rise in the price of an asset, investors who are in a short position in that asset make hasty purchases to reduce their losses. This causes the price of the asset to increase even more.

The largest cryptocurrency by market capitalisation is trading at $59,350 at the time of writing.