Crypto Markets Face Long Squeeze as Bullish Leverage Unwinds
Thursday’s sell-off across top cryptocurrencies appears driven by the forced unwinding of leveraged long positions — not by an influx of new short bets — marking a classic “long squeeze” scenario.
The CoinDesk 20 Index (CD20), tracking the largest and most liquid tokens, fell 6.8% in 24 hours. Bitcoin (BTC) lost nearly 1%, slipping below $120,000, while altcoins posted deeper declines: Ethereum (ETH) dropped 3%, Solana (SOL) fell 8%, and XRP tumbled 13%.
The pullback coincided with falling open interest across perpetual futures markets, according to Velo data. XRP futures open interest declined over 6% in two days, while positions in SOL, BTC, and ETH dropped by 5%, 1.5%, and 2%, respectively — a clear sign of reduced exposure and deleveraging.
Despite the drawdown, funding rates remain positive across the board, suggesting a lingering bias toward long positions. In perpetual futures, positive funding means traders are paying to stay long — a signal that bullish sentiment has not fully reversed.
This combination of falling prices, lower open interest, and sustained positive funding rates points to traders exiting bullish positions, either through liquidations or voluntary closures, rather than initiating fresh bearish bets.
A true bearish shift would typically be marked by negative funding rates and rising open interest as short sellers take control — conditions not present in this case.
Market observers note that long squeezes, while painful in the short term, often help reset over-leveraged conditions and create healthier foundations for future moves. This washout may signal a necessary cooldown after weeks of bullish momentum.
In short, the latest decline looks less like a broad shift in sentiment and more like a leveraged shakeout — one that may pave the way for renewed strength once excess risk is cleared from the system.
