BTC, XRP, SOL, ETH Witness ‘Long Squeeze’ as Futures Open Interest Slides With Prices

The recent price correction in major cryptocurrencies, including Bitcoin (BTC), Ether (ETH), XRP, and Solana (SOL), is primarily attributed to a long squeeze – the unwinding of leveraged bullish positions – rather than a shift towards bearish sentiment. This is evidenced by the confluence of declining prices, reduced open interest in perpetual futures markets, and persistently positive funding rates.

The CoinDesk 20 Index (CD20) experienced a 6.8% drop in the past 24 hours, reflecting broader market weakness. Bitcoin, despite earlier attempts to surpass $120,000, fell by almost 1%. Significant declines were observed in altcoins: Ether (3%), XRP (13%), and Solana (8%). These price movements align with bearish technical indicators.

Crucially, open interest – the total value of outstanding futures contracts – has decreased across major cryptocurrencies. XRP, for instance, saw a more than 6% reduction in open interest over two days, indicating a decrease in market exposure and risk-aversion among traders. Similar declines were observed for SOL (5%), BTC (1.5%), and ETH (2%). This data, sourced from Velo, which tracks activity on major exchanges like Binance, OKX, and Bybit, strongly suggests that traders are actively reducing their positions.

Despite the price drop, positive funding rates persist. This signifies that perpetual futures contracts trade at a premium to the spot price, requiring long positions (bullish bets) to pay shorts. The combination of falling prices, decreasing open interest, and positive funding rates decisively refutes the notion of increased bearish sentiment (new short positions). If new short positions were driving the price decline, funding rates would be negative, as shorts would pay longs. Moreover, increased shorting would have raised open interest, which is contrary to observed market behavior.

The observed decline in open interest is thus best explained by the liquidation or voluntary closure of leveraged long positions, not the influx of new short positions. Therefore, while prices are falling, the underlying market sentiment appears relatively robust, with the current correction primarily reflecting a necessary market cleansing of excessive leverage and overly optimistic bullish bets. The long squeeze is viewed as a positive event that improves market stability.