【Analyst: The current market's significant deleveraging reduces the likelihood of a sharp decline, but also limits the potential for upward short squeezes】

BlockBeats reports that on March 5, independent crypto analyst Axel stated that the perpetual contract funding rate chart for Bitcoin shows that throughout February 2026 and early March, the funding rates remained in negative territory, indicating that short positions dominated the perpetual futures market. Since late January, the funding rate has frequently dipped into negative territory, and over the past two weeks, it has remained there with little recovery. The most extreme readings occurred on February 25 and February 28—days when prices tested local lows around $64,000 to $65,000. As of March 4, the rate was still slightly negative, but the two-week accumulation of negative funding rates suggests that short positions continue to be prevalent. Negative funding rates mean that short holders pay long holders to maintain their contracts, indicating a bias toward shorts. Historically, this situation either signals that any upward momentum could trigger a short squeeze or, if the decline persists, confirms a bearish trend. A key trigger for a sentiment reversal would be a sustained return of the funding rate to positive territory, combined with prices consolidating above a key resistance level (around $70,000) and open interest stabilizing or increasing. Additionally, the open interest in USD-denominated Bitcoin futures shows a decline from a peak of $47.6 billion in October 2025 to $20.8 billion in March 2026. This decrease can partly be explained by falling BTC prices, but overall, it indicates a reduction in derivatives leverage during the correction. The open interest in USD futures has fallen by more than half from the October 2025 peak ($47.6 billion) and about one-third from the January high ($32 billion). As of March 4, open interest stood at $20.8 billion, a level not seen since before the 2025 rally. Over the past seven days, open interest has decreased by another 3.2%, indicating deleveraging continues, albeit at a slower pace. The decline in open interest with falling prices signals forced or voluntary liquidations, meaning the market is indeed shedding leverage. This situation distinguishes it from typical short squeeze scenarios, as lower open interest levels mean there is less mechanical fuel to trigger cascade liquidations, though localized short squeezes may still occur. The risk of further cascading liquidations is lower than in January. Overall, these two indicators paint a more nuanced picture than initially apparent: leverage has exited the market (open interest down from $47.6 billion to $20.8 billion), but remaining participants mainly hold short positions (negative funding rates). This combination reduces the risk of downward cascade liquidations but also limits the potential for spontaneous short squeezes—less fuel remains in the system.