Bitcoin Open Interest Drops Even as Funding Rates Rise, Increasing Risk of Long Liquidations

Forecast Trend Report by Period

Leverage in Bitcoin’s derivatives market is easing, but the market is again becoming more skewed toward long positions, according to on-chain analyst Axel Adler Jr.

In a newsletter published on Aug. 31, Adler wrote that Bitcoin open interest, or OI, has yet to recover to its previous level after the short squeeze. Overall positioning continues to decline, while the cost of keeping long positions is rising quickly.

Bitcoin open interest fell about 3.8% to 318,600 BTC on Aug. 31 from 331,100 BTC on Aug. 21. It also dropped by 2,850 BTC over the past 24 hours, indicating the derivatives market remains in a deleveraging phase.

Funding rates, meanwhile, have risen quickly since Friday. The current funding rate stands at 0.00906%, while the eight-hour average is 0.00821% and the 24-hour average is 0.00725%.

The eight-hour average is about 13% higher than the 24-hour average, suggesting long positioning is becoming more concentrated in the short term.

The market is not yet overheated, Adler wrote, but it is becoming increasingly sensitive to downside moves. He added that if open interest starts rising again while funding rates continue to climb, long leverage would be rebuilt quickly. In that case, the risk of a long squeeze could increase sharply if prices fall.