Bitcoin has jumped from around $62,000 to nearly $80,000 in the past week, recording its second-largest weekly gain in five years. Normally, such a sharp rally would lead traders to increase their exposure to leveraged futures in an effort to magnify returns.
This rally has taken a different path, however. Much of the upward move appears to have come from short sellers closing bearish positions rather than traders aggressively opening new longs.
Futures open interest (OI), which tracks the total number of active contracts, highlights the trend. Bitcoin-denominated OI has dropped to about 587,584 BTC, its lowest level in almost five months, from 645,760 BTC on Aug. 14, according to Glassnode. Looking at OI in BTC terms gives a cleaner picture of market positioning because it avoids the distortion caused by Bitcoin’s rising dollar value.
The divergence is notable: Bitcoin’s price has risen sharply while open interest has declined. Traders betting on lower prices either closed their shorts by buying back positions or were liquidated after failing to maintain sufficient margin.
The resulting wave of liquidations erased billions of dollars in short positions and helped create the short squeeze that pushed Bitcoin through $80,000.
Perpetual futures funding rates also suggest that traders have not become excessively bullish. Annualized rates have remained below 10%, indicating moderate demand for leveraged longs. A much stronger rush into long positions would normally have driven funding rates considerably higher.
Why Lower Leverage Matters
The decline in derivatives activity may actually strengthen the rally by reducing the amount of leverage in the market and lowering the risk of violent reversals.
The trend is particularly encouraging because open interest in crypto-backed futures has also fallen. Glassnode estimates that crypto-margined open interest has reached a record low of about 52,000 BTC, accounting for only 11% of overall futures activity.
That shift toward cash-margined contracts can make the market more resilient during downturns. Cash collateral does not automatically lose value when Bitcoin falls, whereas crypto collateral declines alongside the asset. That can create a liquidation cycle in which falling prices weaken collateral, trigger forced closures and accelerate the sell-off.
The reduced reliance on crypto-backed leverage could therefore help explain why Bitcoin’s volatility has declined over the longer term.
