After a sluggish week, Bitcoin saw a significant bullish push on Friday, February 13th. Heading into the weekend, the leading cryptocurrency appeared poised to retake the key psychological level of $70,000. Interestingly, recent on-chain data suggests this latest surge could mark the beginning of at least a short-term rally for Bitcoin’s price.
Is Bitcoin Nearing a Short Squeeze?
In a Quicktake post on CryptoQuant, market analyst CryptoOnchain highlighted that the Bitcoin Funding Rate on Binance—the world’s largest crypto exchange by volume—has fallen to a critically low level not seen in over a year. The focus is on the 14-day Simple Moving Average (SMA-14) of this rate.
The Funding Rate metric reflects the periodic fee paid between traders in a cryptocurrency derivatives market. A positive rate typically means traders holding long positions (betting on price increases) are paying those with short positions (betting on price declines). Conversely, a negative rate, as seen now, indicates that short traders are paying long traders.
Data from CryptoQuant shows the 14-day SMA of Bitcoin’s Funding Rate on Binance has dropped to -0.002, its lowest point since September 2024. As CryptoOnchain pointed out, a deeply negative funding rate, especially one sustained over a 14-day average, signals that bearish traders are increasingly betting against Bitcoin. The analyst noted that such extreme negative values often coincide with the bottom of severe downtrends.
CryptoOnchain wrote:
> From an on-chain and market psychology perspective, deeply negative funding rates often serve as a strong contrarian signal. The market currently appears to be heavily “overcrowded” on the short side. Historically, this trend has often set the stage for a powerful short squeeze, where even a minor price rebound could trigger a wave of liquidations for the growing number of short positions. This cascade of liquidations can act like jet fuel, pushing Bitcoin’s price even higher.
Bitcoin Price Snapshot
As of this writing, Bitcoin is trading around $69,000, reflecting a gain of over 5% in the past 24 hours.
Frequently Asked Questions
Frequently Asked Questions About Bitcoin Funding Rate and Short Squeezes
Beginner Questions
What is a funding rate
The funding rate is a periodic payment exchanged between traders on perpetual futures contracts It helps keep the contract price close to the underlying assets spot price A positive rate means long traders pay shorts a negative rate means short traders pay longs
What does a critical low or negative funding rate mean
A critical low or strongly negative funding rate means there is a very high number of short positions compared to long positions Short traders are paying a fee to long traders to keep their positions open which is unusual and signals extreme bearish sentiment
What is a short squeeze
A short squeeze is a rapid price increase that forces traders who bet against the asset to buy it back to close their positions and limit losses This wave of buying can push the price even higher creating a feedback loop
Why would a negative funding rate lead to a short squeeze
When funding rates are extremely negative it indicates the market is overcrowded with short sellers If the price starts to rise unexpectedly even a little these short sellers may panic and buy back Bitcoin to exit their positions This mass buying can trigger a sharp explosive price rallya short squeeze
Is a short squeeze guaranteed when the funding rate is negative
No it is not guaranteed A negative funding rate shows conditions are ripe for a squeeze but it requires a catalystlike positive news or a sudden surge in buying pressureto spark the initial price move that forces shorts to cover
Intermediate Advanced Questions
How is the funding rate calculated and how often does it occur
Its typically calculated as a function of the difference between the perpetual contract price and the spot price along with an interest rate component On major exchanges like Binance and Bybit it is applied every 8 hours
Whats the difference between funding rate and open interest
The funding rate shows the sentiment and cost structure between longs and shorts Open Interest shows the total number of open derivative contracts High OI with extreme negative funding suggests a crowded short trade increasing squeeze potential
Can traders see the potential for a squeeze before it happens
Yes analysts watch for