Crypto Markets See Record Leverage Flush as Funding Rates Collapse to Bear-Market Lows

Funding rates across major crypto derivatives exchanges have plunged to their lowest levels since the depths of the 2022 bear market, signaling one of the largest leverage resets in the history of digital assets. 

According to on-chain analytics platform Glassnode, the sharp drop reflects how “aggressively speculative excess has been flushed from the system,” as short sellers dominated the market over the weekend.

Funding rates, periodic payments between traders in perpetual futures contracts, are designed to keep contract prices close to spot prices. When they fall deeply negative, it typically means the market is heavily skewed toward shorts, indicating widespread bearish sentiment. 

Yet paradoxically, such conditions can often precede strong rebounds, as oversold markets become vulnerable to short squeezes when prices begin to rise.

Oversold Market May Be Ripe for Reversal

The latest data from CoinGlass shows that while funding rates across Bitcoin and Ether perpetual swaps remain slightly negative, market sentiment has shifted to a cautiously bullish stance. 

Roughly 54% of traders are now bullish or very bullish, compared to 29% bearish, suggesting growing expectations for a rebound. CoinGlass also reports that long positions now make up 60% of accounts, a notable turnaround from the weekend’s heavy short bias.

Spot markets are already showing signs of stabilization. Bitcoin has gained more than 5% since its Sunday dip below $110,000, while Ether has rallied nearly 12% after briefly dropping under $3,800. 

Analysts note that such recovery patterns are typical following large-scale liquidation events, which often mark the end of highly leveraged phases in the crypto market.

“Crypto Black Friday” Triggers Record Liquidations

Friday’s crash, dubbed “Crypto Black Friday” by traders, marked the largest leverage flush in crypto history, according to data from TradingView. Nearly $1 trillion in total market capitalization was wiped out in hours, with Bitcoin alone shedding about $380 billion before rebounding sharply.

Reports indicate that whales opened massive short positions ahead of the sell-off, anticipating a reaction to President Donald Trump’s latest tariff announcement on China. When the cascade began, it liquidated 1.6 million leveraged long positions, creating the first-ever $20,000 red candlestick in Bitcoin’s trading history.

Analysts say the event, while brutal, serves a critical function. Leverage flushes “reset” overheated markets, removing excessive speculation and paving the way for more sustainable growth. As volatility cools and funding rates stabilize, traders will be watching closely for signs of a true bottom, and the potential start of a new cycle.