TLDR
- Crypto derivatives funding rates have reached their lowest levels in three years, signaling a significant market shift.
- Bitcoin and Ethereum are experiencing negative funding rates, with more short positions than long positions in both markets.
- Despite negative funding rates, the recent price rebounds of Bitcoin and Ethereum suggest a potential for a short squeeze.
- The largest liquidation event in crypto history wiped out $380 billion in market capitalization, resetting the market.
- Market analysts suggest the drop in funding rates could lead to a bullish reversal as speculative excess is cleared out.
Crypto derivatives funding rates have hit their lowest levels since the 2022 bear market. This sharp decline in funding rates signals a significant change in the market. According to Glassnode, the drop marks one of the most severe leverage resets in crypto history.
Bitcoin’s Funding Rates Turn Negative
Funding rates across Bitcoin’s derivatives have turned slightly negative, indicating a shift in market sentiment. According to the latest data, funding rates remain low, indicating an increased number of short positions. Analysts suggest this reflects traders’ bearish expectations, despite the recovery seen in spot markets.
Funding rates across the crypto market have plunged to their lowest levels since the depths of the 2022 bear market.
This marks one of the most severe leverage resets in crypto history, a clear sign of how aggressively speculative excess has been flushed from the system. pic.twitter.com/XBufZmA9vs
— glassnode (@glassnode) October 12, 2025
Bitcoin’s price has recently bounced back by over 5%, following a sharp drop below $110,000. Glassnode’s analysis highlights a strong market reaction to these funding rates. This drop has created a situation where shorts could be squeezed if Bitcoin’s price continues to rise, offering a potential bullish outcome.
“The dramatic fall in funding rates is a clear sign of speculative excess being flushed from the system,” said Glassnode analysts. While this may seem bearish, the conditions could favor a short squeeze. A short squeeze often follows periods of extreme short positions, particularly when market conditions rapidly reverse.
Ethereum’s Funding Rates Reflect Similar Trends
Ethereum’s crypto derivatives also show similar trends, with funding rates remaining slightly negative. The funding rates for Ether perpetual swaps mirror those of Bitcoin, as short positions dominate the market. Ethereum’s price has recovered by over 12% from its low below $3,800 earlier this week.
Despite these negative funding rates, market sentiment is shifting towards a more positive outlook. CoinGlass reports that 54% of traders are now bullish on Ethereum’s future. At the same time, only 29% remain bearish, reflecting an overall shift in market outlook.
Ethereum’s funding rates have been impacted by the same market forces driving Bitcoin’s decline. As traders adjust their positions, the potential for a short squeeze remains high. This could lead to a sharp upward movement in Ethereum’s price if the current trend continues.
Crypto Derivatives Market Reset After Largest Liquidation
The recent downturn led to the largest leverage flush in crypto history, triggering widespread liquidations. Traders who had used leverage to place long positions were caught off guard by the rapid price drop. In total, 1.6 million traders were liquidated as Bitcoin’s price dropped sharply, resulting in a $380 billion loss in market capitalization.
This unprecedented event was fueled by geopolitical news, particularly the announcement of new tariffs by U.S. President Donald Trump. The liquidation triggered a rapid recovery, with Bitcoin’s price rebounding quickly. Analysts refer to this event as “crypto Black Friday,” as it reset the market and brought funding rates to new lows.
The sharp market movements are part of a regular cycle in crypto derivatives. Leverage flushes help clear out excessive speculation, resetting the market for new growth. As funding rates remain low, the stage could be set for a potential rally in both Bitcoin and Ethereum.
