The recent decline in Bitcoin prices has left many traders discouraged I bet on further declines, with on-chain data showing a noticeable boost in bearish positioning on major cryptocurrency exchanges. Aggregate financing rates have fallen to deeply negative levels, according to Santiment’s on-chain data.

This level of deep shorting has not been seen in Bitcoin since August 2024, a period that ultimately established a major bottom before a massive multi-month rebound. Bitcoin traders are now back at this level and history shows that this is such extreme positioning may create conditions for a rally.

Funding rates show a bearish position for Bitcoin

Santiment’s “Funding Rates Aggregated by Exchange.” the metric combines funding data from multiple major exchanges to provide a good picture of market sentiment and positioning pressures across the cryptocurrency industry.

Funding rates are a mechanism used in perpetual futures markets in which investors pay each other diminutive fees at regular intervals to keep contract prices in line with spot prices. When funding rates are negative, the low seller pays the long traders. When they are positive, long positions pay low positions.

The latest chart data from Santiment shows that funding rates are currently in negative territory, with red bars dominating the bottom of the chart. Funding rates are currently less than -0.01%, showing that a significant portion of derivatives traders are bullish on the downside.

More often than not, financing rates are positive, as shown in the chart below. The last time derivatives financing reached similarly extremely negative levels was in August 2024, according to Santiment.

At the time, investors were aggressively shorting Bitcoin after a noticeable price collapse. However, instead of continuing its decline, Bitcoin’s price action reversed sharply. Short liquidations contributed to a gain of approximately 83% over the following four months as positions were forced to close.

A similar situation occurred after the gigantic Binance liquidation on October 10, 2025, when billions of dollars in long positions disappeared. Following this, investors suddenly turned bearish and took low positions.

Extreme tightness can lead to pinching

Extreme negative financing is a reflection of fear-based positioning. All that needs to happen for a low squeeze to occur is for Bitcoin’s price to boost slightly.

If the price unexpectedly increases, apply leveraged shorts start making up for your losses quickly. When these losses exceed liquidation thresholds, exchanges automatically close these positions. Traders must buy back Bitcoin to cover their positions, and this in turn creates upward pressure on the price.

At the time of writing, Bitcoin is trading at $68,740, but… short-term cost basis is approximately $90,900. A forceful push and close above $75,000 could lead to bullish momentum and attract fresh inflows, increasing the risk of a low squeeze. However, just a severe low circuit does the trick do not guarantee immediate rebound, although it creates a fragile environment where positioning pressure can quickly turn into edged upside volatility.

Featured image from Getty Images, chart from Tradingview.com