The current market is significantly reducing leverage by unwinding positions, decreasing the likelihood of a major crash, but at the same time limiting the potential for an upward short squeeze#加密市场上涨

On March 5, independent crypto analyst Axel wrote that the funding rate chart for Bitcoin perpetual contracts shows that during February 2026 and early March, the funding rate remained in negative territory, indicating that short positions dominate the perpetual futures market.
Since the end of January, the funding rate has often fallen into negative territory, and over the past two weeks, it has remained there almost without rebound. The most extreme readings occurred on February 28 and February 25—two days when the price tested local lows around $64,000 to $65,000. As of March 4, the funding rate was still slightly negative, but the two-week accumulation of negative funding rates suggests that short positions tend to persist.
Negative funding means short position holders pay fees to long position holders to maintain their contracts, indicating a tendency toward short positions. Historically, this condition can signal that any upward push has the potential to trigger a short squeeze, or if the decline continues, confirm a bearish trend. A key factor that could reverse this sentiment is the funding rate returning consistently to positive, while prices consolidate above the main resistance level (around $70K), and open contract volume remains stable or increases.
Additionally, the Bitcoin futures contract volume measured in dollars 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 the drop in BTC prices, but overall it indicates a reduction in derivative leverage during the correction phase.
The dollar-denominated futures contract volume has fallen more than half from its October 2025 peak ($476 billion), and about one-third from the January peak ($320 billion). As of March 4, open contract volume was $20.8 billion, the level last seen before the 2025 rally. Over the past 7 days, open contract volume decreased by another 3.2%, indicating that deleveraging is still ongoing, although at a slower pace.
The decline in open contract volume alongside falling prices signals forced or voluntary position closures, indicating that the market is truly unloading its load. This distinguishes the current situation from a typical short squeeze scenario, as lower open contract volume generally means less mechanical fuel to trigger cascading liquidations, although a local short squeeze remains possible. The risk of cascading liquidations is lower compared to January.
Overall, these two indicators paint a more nuanced picture than a quick glance might suggest: leverage has exited the market (open contract volume decreased from $476 billion to $208 billion), but remaining participants mostly hold short positions (negative funding rates). This combination reduces the risk of downward cascading liquidations but also limits the potential for spontaneous short squeezes—fuel in the system is diminished.