Bitcoin perpetual contract funding rates have remained negative throughout February and early March 2026, indicating a dominance of short positions in the perpetual futures market. According to BlockBeats, since late January, funding rates have frequently dipped into negative territory, staying there for the past two weeks with minimal recovery. The most extreme readings occurred on February 28 and February 25, when prices tested local lows around $64,000 to $65,000. As of March 4, the rates remain slightly negative, suggesting a persistent bias towards short positions.
Negative funding rates imply that holders of short positions pay fees to long position holders to maintain their contracts, indicating a bearish sentiment. Historically, this situation either signals a potential short squeeze if prices rise or confirms a bearish trend if the decline continues. A key trigger for sentiment reversal would be a sustained positive funding rate, with prices consolidating above key resistance levels around $70,000 and open interest stabilizing or increasing.
Additionally, the chart of Bitcoin futures open interest, denominated in USD, shows a decline from a peak of $47.6 billion in October 2025 to $20.8 billion in March 2026. This decrease can be partially attributed to the drop in BTC prices, but overall dynamics point to a reduction in derivatives leverage during the adjustment period.
The open interest, measured in USD, has fallen by more than half from its October 2025 peak and by about a third from January's high of $32 billion. As of March 4, the open interest stands at $20.8 billion, a level not seen since before the 2025 bull run began. In the past seven days, open interest has decreased by 3.2%, indicating continued deleveraging, albeit at a slower pace.
The decline in open interest alongside falling prices signals forced or voluntary position closures, suggesting the market is shedding excess weight. This differentiates the current situation from typical short squeeze scenarios, where lower open interest levels mean less mechanical fuel for triggering liquidation cascades, although localized short squeezes remain possible. The risk of further downside liquidation cascades is lower than in January.
Overall, these two indicators paint a more nuanced picture than initially apparent. Leverage has exited the market, with open interest dropping from $47.6 billion to $20.8 billion, while remaining participants predominantly hold short positions. This combination reduces the risk of downside liquidation cascades but also limits the potential for spontaneous short squeezes, as there is less fuel in the system.
Alex
