Ethereum's derivatives market has undergone a significant structural shift following a wave of short liquidations, with perpetual funding rates flipping back into positive territory. For an extended period, positive funding rates indicated that long traders were paying shorts, reflecting bullish positioning. However, ETH's price failed to rally consistently during those phases, demonstrating that positive funding alone does not guarantee upward momentum.
More recently, funding rates turned sharply negative, with deep red spikes signaling aggressive short positioning that coincided with sustained downside pressure for ETH. This dynamic was especially pronounced on Binance, which hosts the largest share of global derivatives liquidity and often acts as the epicenter for liquidation cascades.
The current return to positive funding suggests a large portion of short positions have been cleared, easing immediate downside pressure and opening the door for short-term stabilization or a relief bounce. Analysts caution, however, that excessively positive funding could lead to a long squeeze, repeating the cycle from the opposite side. For Ethereum, the $2,500 resistance level remains a critical threshold to watch for confirming a broader trend reversal.
Meanwhile, Bitcoin is exhibiting a similar but inverted pattern. Analyst Amr Taha noted on February 27 that BTC perpetual funding rates on major exchanges like Binance, OKX, and Bybit have simultaneously moved into negative territory, signaling dominant bearish positioning where short sellers are paying longs.
Taha interprets this extreme negative funding as a potential setup for a short squeeze, arguing that excessive short positioning often precedes sharp upside reversals. He pointed to a BTC liquidation heat map showing dense clusters of leveraged short positions above the current price, many originating around the $92,000 level. A push higher could force these positions to close, accelerating upside volatility.
Concurrently, retail activity is ticking up, with trading frequency among smaller investors spiking relative to its one-year average, indicating re-entry into the market. Whale flow data shows roughly 1,700 BTC in positive net inflows from medium-term holders into Binance, a movement analysts describe as less aggressive than previous bearish signals.
Bitcoin briefly tested $70,000 on February 26 but failed to hold, settling into a range between $66,600 and $68,600. At the time of reporting, BTC was trading slightly below $68,000, down 0.4% over 24 hours and nearly 24% lower on a 30-day basis.
