These 2 Bitcoin Derivatives Signals Could Trigger a Long Squeeze: Analyst

Bitcoin’s derivatives market is showing a curious split, with open interest falling nearly 4% since August 21, while funding costs for long positions have risen quickly.

Analyst Axel Adler Jr. says that combination could leave BTC exposed to a long squeeze if traders start rebuilding leverage while maintaining an increasingly bullish bias.

Falling OI Meets Rising Funding

In Adler’s latest brief, he put the focus on what is happening beneath Bitcoin’s price, with BTC-denominated open interest falling from 331,100 BTC on August 21 to 318,600 BTC on August 31, a decline of 3.8%. Over the past 24 hours, another 2,850 BTC has left open positions.

That means the derivatives market is still in a deleveraging phase following the short squeeze. But traders have not rushed to rebuild the amount of leverage that was cleared out during the earlier move.

Meanwhile, funding tells a different story, with the current funding rate at 0.00906%, while the eight-hour average sits at 0.00821% and the 24-hour average at 0.00725%. The shorter-term average is already 13% above the 24-hour figure, pointing to a stronger preference for long positions among active traders.

“The shorts have already been burned. Now the longs are in the crosshairs,” noted the market watcher.

For now, he does not consider the market overheated, with the concern coming if funding continues rising at the same time that open interest begins recovering. That would mean traders are adding new long leverage rather than simply maintaining a bullish bias within a smaller derivatives market. A decline in Bitcoin under those conditions could trigger forced liquidations as leveraged longs close.

The price action gives that risk some context, with Bitcoin dipping below $77,000 due to ongoing tensions between the US and Iran, as reported by CryptoPotato earlier today, before rising back up again to $79,000.

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Why $79,700 Matters

However, the setup is complicated by the amount of leverage already removed. More than $9.7 billion in crypto positions has been liquidated over the past two weeks, including $6.55 billion in shorts and $3.16 billion in longs. Bitcoin’s move back to $79,000 also caused roughly $30 million in short liquidations within an hour.

That leaves a distinction between forced buying and genuine spot demand, and according to the crypto intel provider, if BTC holds above $79,700 with stronger volume, the market may absorb higher funding without immediately becoming vulnerable to a squeeze. But if the level fails and Bitcoin falls through $77,000 to $78,000, rising funding could become much more uncomfortable for longs.

Adler’s warning is therefore conditional, rather than a prediction of an imminent liquidation event. Open interest is falling now, but the more dangerous setup would come if it starts rising again while funding keeps climbing.

More on the market’s state and the latest developments can be found in our video below: