Massive leverage flush resets crypto markets as short sellers dominate
Funding rates across crypto derivatives markets have fallen to their lowest levels since the 2022 bear market, signaling one of the most aggressive leverage resets in recent memory — and possibly setting the stage for a bullish reversal.
On Sunday, onchain analytics firm Glassnode reported that funding rates — the periodic payments traders make to balance long and short positions in perpetual futures — have plunged to multi-year lows.
“This marks one of the most severe leverage resets in crypto history,” Glassnode noted, emphasizing how “speculative excess has been flushed from the system.”
Funding rates across the crypto market have plunged to their lowest levels since the depths of the 2022 bear market.
This marks one of the most severe leverage resets in crypto history, a clear sign of how aggressively speculative excess has been flushed from the system. pic.twitter.com/XBufZmA9vs
Funding rates are a key indicator of market sentiment. When they turn extremely low or negative, it means short sellers dominate — traders are willing to pay premiums to stay short.
While that may sound bearish, historically such conditions have preceded major market rebounds, as an oversupply of short positions can trigger a short squeeze once prices start to rise.
According to CoinGlass, roughly 60% of positions are now long, while 40% remain short — and overall sentiment has flipped to 54% bullish or very bullish.
“The setup looks similar to previous market bottoms,” one analyst commented, noting that funding rates remain slightly negative for Bitcoin (BTC) and Ether (ETH) perpetual swaps.
Market rebounds after record liquidations
The plunge in derivatives funding followed the largest liquidation event in crypto history on Friday — dubbed “crypto black Friday”. Nearly $1 trillion in total crypto market capitalization was wiped out within hours, as 1.6 million leveraged traders were liquidated after U.S. President Donald Trump’s 100% tariffs on Chinese imports sent markets spiraling.
According to TradingView, the sell-off created the first-ever $20,000 red candlestick in Bitcoin, briefly erasing $380 billion in BTC’s market value before a sharp recovery.
Despite the chaos, spot prices have bounced back, with Bitcoin reclaiming $114,000 and Ether up 12% from weekend lows.
Analysts say such massive leverage resets often clear out weak hands, paving the way for sustainable growth.
“Every cycle begins with pain — and resets like these are what fuel the next leg up,” Glassnode concluded.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.
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