After the short squeeze, Bitcoin's derivatives market did not recover its previous level of leverage: since August 21, price has remained higher while BTC-denominated open interest has declined. Since Friday, the picture has changed again - total positioning continues to shrink, but the cost of holding longs is rising rapidly.
TL;DR
The market went through a significant reduction in leverage after the short squeeze, but the bias toward longs is now strengthening again within the shrinking OI. This is not overheating yet, but the structure is becoming more sensitive to a downward price move.
Bitcoin Open Interest Change (BTC)
Bitcoin open interest has not recovered since the short squeeze. From August 21 to August 31, OI fell from 331.1K to 318.6K BTC, a decline of 3.8%. Over the past 24 hours, the change in OI turned negative again at -2.85K BTC. This means the market is not showing renewed leverage expansion after the shakeout. The derivatives market remains in a deleveraging phase, and participants are not rushing to rebuild large positions.
Bitcoin Funding Rates
The funding rate began rising rapidly again on Friday. The current Funding Rate is 0.00906%, the 8-hour average is 0.00821%, and the 24-hour average is 0.00725%. At the same time, 8H funding is already 13% above the 24H average, indicating a growing short-term bias toward longs.
This contrasts with open interest: total leverage is declining, but the long side is becoming more aggressive within the shrinking OI. The market does not look overheated yet, but a further rise in funding combined with a recovery in OI would increase the risk of a long squeeze.
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FAQ
What does the combination of OI and funding show now? Open interest is declining, which means total leverage is shrinking. At the same time, funding is rising, so the bias toward longs is strengthening within the shrinking OI.
When would this bias become dangerous? If funding continues to rise alongside a recovery in OI. That combination would mean the market is actively rebuilding long leverage, increasing the risk of a long squeeze if price declines.
CONCLUSIONS
The market remains in a phase of declining overall leverage after the short squeeze: open interest has fallen 3.8% since August 21. At the same time, funding has accelerated significantly since Friday, while the 8H average has risen above the 24H average, indicating a new short-term bias toward longs. If the funding rate continues to rise alongside a recovery in open interest, the risk of a long squeeze will increase significantly.
Live Charts
Explore the metrics behind this brief with live, auto-updating charts:
Open Interest (BTC) - Total futures positioning and 7-day BTC-denominated change.
Funding Rates - Perpetual futures funding to track long-side or short-side leverage pressure.
Fear & Greed Index - Composite market sentiment for risk appetite and sentiment extremes.
Derivatives - All funding, open-interest, and leverage charts in one view.