Bitcoin's derivatives markets are flashing warning signs of extreme fear and low leverage demand as a massive $2.1 billion options expiry approaches, coupled with a historic tumble in funding rates. This confluence of factors is setting the stage for potential short-term market volatility, despite Bitcoin's price recovering to approximately $71,500 after a recent sell-off.
The impending options expiry, with a notional value of $2.1 billion, is a key focal point for traders. The put/call ratio currently stands at 0.60, indicating a lingering but potentially fading bullish sentiment from the past. More critically, the BTC options skew metric—which measures the demand for put (sell) options versus call (buy) options—surged to 20% on Friday, a level rarely seen and typically associated with market panic. For context, this skew was at 11% following a 28% price correction in late November 2025.
Simultaneously, Bitcoin's funding rates, which incentivize traders to align perpetual futures prices with the spot market, have decreased significantly. This funding rate tumble signals a deleveraging trend and a lack of aggressive bullish positioning. The caution is further evidenced in the futures market, where the BTC futures annualized basis rate dropped to just 2%, its lowest level in over a year and well below the neutral 5-10% range.
Market participants fear these signals may be tied to the liquidation of $1.8 billion in leveraged bullish futures contracts over a five-day period, sparking speculation that a major hedge fund or market maker may have faced significant losses. While aggregate Bitcoin futures open interest remained relatively flat at 527,850 BTC, its notional value dropped from $44.3 billion to $35.8 billion, mirroring the 21% price decline over the past week. This indicates bulls have been adding positions even as prices fell, but with minimal leverage conviction.
Analysts note that unlike the historic market collapse in October 2025, which saw a record $4.65 billion in Bitcoin futures liquidations, the current downturn has been marked by three consecutive weeks of steady downside pressure. The prevailing sentiment suggests that without a clear catalyst, fear and uncertainty are driving the derivatives metrics, making sustained bullish momentum unlikely in the near term.
