On-chain data reveals that Bitcoin (BTC) funding rates across major exchanges have collapsed to their most negative levels since August 2024, signaling extreme bearish sentiment and crowded short positioning among traders. According to Santiment's aggregated exchange data, funding rates have fallen below -0.01%, a level not seen since the market bottom that preceded an 83% rally over the following months.
The current market structure mirrors the August 2024 setup, where aggressive shorting marked a major price reversal point. The Net Unrealized Profit/Loss (NUPL) metric has returned to the 0.18 zone, historically associated with the 'Hope and Fear' phase, indicating that profit cushions for holders are thin. This combination of extreme positioning and thin profit margins creates a reactive market environment where small price moves can trigger outsized responses.
Technically, Bitcoin has broken out of a steep descending channel and is grinding just below the key $70,000 to $71,000 supply zone. A decisive break above the $70,610 resistance level is seen as the critical trigger that could validate the short squeeze thesis, potentially targeting $76,000 initially, with thinner resistance extending toward $80,000, $90,000, and even $98,000 if momentum builds. Conversely, failure to hold the $64,000 level could see a test of the $60,000 demand zone.
The mechanics of a potential squeeze are straightforward: if Bitcoin's price pushes unexpectedly higher, leveraged short positions would begin accumulating losses rapidly. Once these losses cross liquidation thresholds, exchanges would automatically close these positions, forcing traders to buy back Bitcoin to cover. This covering activity creates upward price pressure, potentially fueling a sharp rally. However, analysts note that while extreme shorting creates a fragile environment ripe for volatility, it does not guarantee an immediate rebound, with the market still contending with ETF outflows and macro uncertainty.
