Bitcoin’s sharp drop to $81,119 on January 30 was accompanied by a significant blow in the derivatives market: forced long liquidations surged to extreme levels, yet funding rates for perpetual contracts remained firmly positive. This combination complicates a common interpretation of whether the market has already “flushed out” excessive leverage or remains vulnerable to further waves of liquidations.
Is the Bitcoin Deleveraging Over?
On-chain analyst Axel Adler Jr. highlighted a “cascade of forced closures” over the past 24 hours in his Morning Brief, with long liquidations dominating the market. His liquidation dominance oscillator, which tracks the balance between long and short liquidations, reached roughly 97%, while its 30-day moving average rose to 31.4%. In simpler terms, this indicates that deleveraging pressure has been heavily skewed toward long positions, not just recently but as a sustained trend over the past month.
Traders watch such extremes because liquidation flows often cluster and then subside, potentially allowing for near-term price stabilization. Adler approached this dynamic cautiously, noting that an “extreme” reading does not confirm that selling pressure is exhausted.
“Oscillator extremes often coincide with the peak of forced selling and can lead to short-term stabilization. However, this is not a reversal signal on its own. For a sustainable local bottom to form, we need to see the oscillator normalize toward zero or the 30-day average decline.”
This sets the first condition for declaring the deleveraging cycle over: the imbalance in liquidations must cool down, not just reach a peak.
The more significant tension in Adler’s analysis is that even after the price drop and liquidation cascade, funding rates stayed positive—at 43.2% annualized, according to his data. While this is well below the 100%+ annualized levels seen during the October–November peak, it still indicates a market where traders are paying a premium to maintain long positions rather than being incentivized to short.
Funding rates reflect not just sentiment but also positioning pressure. If funding remains positive despite a sell-off, it can mean that long positions are being rebuilt quickly, or that bullish leverage was never fully unwound. Adler concluded that the latter risk remains present.
“Positive funding amid massive liquidations increases the risk of repeated deleveraging. This suggests the market is either quickly rebuilding long exposure or is unwilling to unwind it completely. A full ‘derivatives capitulation’ is typically accompanied by funding rates turning neutral or negative—which hasn’t happened yet.”
In other words, while the liquidation event was severe, the incentives embedded in perpetual contracts continue to favor long positions. This matters because it preserves market fragility: another downward move could turn these newly established longs into fuel for another round of liquidations.
Adler summarized the combined signals from the data as pointing to a severe but potentially incomplete washout.
“Together, the two charts suggest deleveraging is likely not finished. Liquidations hit long positions extremely hard, but overall positioning remains tilted bullish. The liquidation cascade (with long dominance near 97%) is a symptom of a market overloaded with long positions, but not necessarily a final cleansing. Persistently positive funding (43% annualized) may indicate that demand for long exposure persists, meaning the deleveraging process is not complete.”
Until further confirmations appear, Adler’s base case is not one of “final capitulation” but rather “incomplete deleveraging”—a market that has already flushed out some leverage but may not be done if the appetite for long positions persists through price declines.
At the time of writing, Bitcoin is trading at $82,968.
Frequently Asked Questions
Of course Here is a list of FAQs about the topic Is the Bitcoin SellOff Finally Over Heres What Derivatives Data Reveals designed to be helpful for both beginners and more advanced readers
Beginner General Questions
1 What does Bitcoin selloff mean
A selloff is a period when a large number of investors are selling their Bitcoin typically leading to a rapid and significant drop in its price
2 How can derivatives data tell us if a selloff is over
Derivatives data shows what professional and institutional traders are doing and expecting It can reveal if panic selling has exhausted itself if sentiment is shifting from fear to greed or if leverage has been flushed out of the market
3 What are Bitcoin derivatives
They are financial contracts like futures and options whose value is based on the price of Bitcoin Traders use them to bet on future price movements hedge against risk or use leverage
4 Is this analysis a surefire prediction
No Derivatives data provides powerful clues about market structure and trader sentiment but it is not a crystal ball Unexpected news or macroeconomic events can always change the trend
Intermediate DataSpecific Questions
5 What is the funding rate and why is it important
In perpetual futures contracts the funding rate is a periodic fee paid between long and short traders to keep the contract price close to the spot price Negative funding rates often signal that most leveraged traders are betting on the price to fall which can be a contrarian oversold signal that a bounce is due
6 What does open interest tell us
Open Interest is the total number of outstanding derivative contracts A falling OI during a price drop suggests traders are closing positions which can indicate a capitulation eventa key sign a selloff is washing out
7 What are liquidations and how do they signal an end
Liquidations happen when leveraged positions are forcibly closed by exchanges because the trader has run out of collateral A cascade of