Epic market reversal after leveraged liquidation: funding rate falls to Bear Market low, Bitcoin and Ethereum stage a "short squeeze" spectacle.

Following last Friday's escalation of the US-China trade conflict, which triggered the largest leveraged liquidation in history at 19 billion USD, the funding rates in the crypto derivatives market plummeted to their lowest levels during the bear market of 2022. On-chain analytics provider Glassnode reported that this is “one of the most severe leverage resets in crypto history.” However, the ultra-low funding rates indicate an excessive accumulation of short positions, creating conditions for the subsequent “V-shaped rebound”. As of Monday, Bitcoin has risen over 5% from its lows, with Ethereum seeing gains of up to 12%, and market sentiment has shifted to bullish, with the Long-Short Ratio now turning bullish dominant.

Leverage Reset: The Significance of Funding Rate Signals

The funding rate is a unique mechanism in the crypto perpetual futures contract market, aimed at anchoring the contract price to the spot price through regular payments between long and short traders. When the funding rate is extremely low or negative, it indicates that there are more short positions than long positions in the market, suggesting that derivative speculators generally expect prices to fall and are willing to pay to hold short positions.

Glassnode reported in its weekly report last week that the sharp decline in funding rate is a clear signal that “the speculative bubble is being systematically wiped out,” marking that the market has experienced “one of the most severe leverage resets.” Short positions took the opportunity to heavily short during the significant fall over the weekend, causing the funding rate to drop to the lows seen at the bottom of the 2022 Bear Market.

Excessive accumulation of short positions: Bitcoin and Ethereum initiate a “V-shaped” rebound

Although the funding rate is currently still at a slightly negative value (CoinGlass data shows that the funding rate for Bitcoin and Ethereum perpetual contracts still leans towards short positions), the extremely low funding rate actually indicates the possibility of the market hitting the bottom. When short positions accumulate excessively, the market easily enters an “oversold” state; once the price starts to rise slightly, it will trigger a large number of short position liquidations, leading to a price increase and forming a “Short Squeeze”.

Market dynamics confirm this logic:

· Spot market rebound: Bitcoin price has strongly rebounded over 5% after falling below 110,000 on Sunday; Ethereum has rebounded as much as 12% after dropping below 3,800.

· Sentiment reversal: According to data from CoinGlass, the market Long-Short Ratio has shifted to a bullish dominance, with long accounts now accounting for 60% and short accounts for 40%. In the overall market sentiment, about 54% of opinions lean towards bullish or extremely bullish.

Historical Liquidation Review: Market Self-Recovery After Black Swan Events

This event, referred to by some market participants as “Crypto Black Friday,” is the largest liquidation in crypto history. According to TradingView statistics, the total market capitalization of Crypto Assets plummeted by 25% in just a few hours, experiencing a “wick down”.

According to reports, there are whales that preemptively set up a large number of short positions after Trump announced new tariffs on China. The subsequent price waterfall drop led to the liquidation of 1.6 million traders holding leveraged long positions. The Kobeissi Letter reported that market trading volume was extremely high, with Bitcoin even experiencing a red K-line at 20,000 for the first time, resulting in a market cap evaporation of 380 billion, and subsequently forming a “V-shaped” bottom driven by short covering. The scale of this liquidation is nine times the previous historical record. Leverage cleaning is a common phenomenon in the market, helping to eliminate the risk accumulation of excessive speculation in the derivatives market and laying the groundwork for a healthy rise in prices in the next round.

Conclusion

This incident once again confirms the eternal truth in the crypto market that “leverage is a double-edged sword.” The record liquidations, although bringing immense pain in the short term, completed the market leverage “big reset” in the most drastic way. When the funding rate falls to historical lows and short positions reach their limits, the inherent forces of the market will initiate a reverse correction. The “V-shaped” rebound of Bitcoin and Ethereum is a powerful counterattack against excessive bearish sentiment. Although short-term prices have been corrected, investors should remember: leverage liquidation is merely the surface of the market reset, while the uncertainties of geopolitics and macroeconomics remain fundamental risks that require long-term vigilance.

This article is for news information only and does not constitute any investment advice. The crypto market is highly volatile, and investors should make decisions with caution.