Bitcoin short positions reach highest levels in years as BTC remains above $70,000.

Traders in Bitcoin derivatives are increasingly preparing for additional declines instead of a straightforward recovery as the leading cryptocurrency remains within a narrow range beneath $70,000.

As per data from CryptoSlate, the BTC price reached a low of $65,092 in the past 24 hours but has since bounced back to $66,947 at the time of writing. This marks a week of tight trading that has not generated any momentum for the flagship cryptocurrency.

This vulnerability is most evident in the derivatives market, where traders are increasingly favoring short positions aimed at capitalizing on further declines rather than a straightforward rebound.

This situation creates a familiar tension within crypto markets. Overcrowded short positions can lead to sudden upward movements, but a market influenced by recent liquidation events and weak spot demand may remain in a defensive stance longer than contrarian traders anticipate.

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Funding indicates a crowded downside trade

The funding-rate metric from Santiment, which compiles data from major exchanges, has fallen into negative territory, suggesting that shorts are compensating longs to maintain their positions.

The crypto analytics firm characterized this decline as the most significant wave of short positioning since August 2024, a time that coincided with a major market bottom and a sharp multi-month recovery.

Bitcoin Shorting Spikes (Source: Santiment)

Funding rates exist because perpetual futures do not have an expiration date. Exchanges implement periodic funding payments to align perpetual prices with spot prices.

When funding is positive, leveraged longs compensate shorts. Conversely, when it is negative, shorts compensate longs. Deeply negative funding typically indicates a one-sided trade; the majority is paying to remain short, often with leverage.

This creates a risk of a squeeze even in a generally weak market. If spot prices rise, even slightly, losses on leveraged shorts can necessitate buybacks. These buybacks can drive prices higher, potentially triggering further forced covering.

However, negative funding does not guarantee a rally. It reflects the leaning of positioning, not the amount of spot demand waiting on the sidelines.

In early 2026, several indicators still suggest a defensive stance, which helps explain the persistence of bearish funding.

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October’s “10/10” crash continues to influence risk appetite

The traction of the short trade is rooted in the aftermath of October 2025’s historic deleveraging, an event traders refer to as “10/10.”

CryptoSlate previously reported that over $19 billion in crypto leverage was liquidated within approximately 24 hours on that day.

This event was triggered by a macro shock (trade-war tariff headlines) that impacted already crowded positions and coincided with diminishing order-book depth.

This context is significant as it helps clarify why extreme negative funding can persist longer than contrarian traders might expect.

After multiple liquidation cascades, many traders view rallies as chances to hedge, reduce exposure, or increase shorts against resistance.

In such an environment, bearish positioning can become a default stance rather than a tactical trade that quickly reverses.

Glassnode’s latest weekly analysis captures this push-and-pull dynamic. The firm noted that Bitcoin is being absorbed within a $60,000 to $72,000 “demand corridor,” a range where buyers have consistently entered the market.

However, it also highlighted overhead supply likely to limit relief rallies, pointing to significant supply clusters in unrealized loss around $82,000 to $97,000 and $100,000 to $117,000.

Collectively, these levels provide a roadmap for traders: there is potential for a squeeze within the corridor, but there are also clear areas where previous buyers may look to sell into strength.

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Options pricing indicates fear is being accounted for

Derivatives markets beyond funding are reinforcing a cautious outlook.

Deribit’s Weekly market report indicated that BTC funding fell to its most negative level since April 2024, and that short-dated futures traded at substantial discounts to spot, a trend consistent with bearish demand for leverage.

The same report noted a surge in downside hedging demand, with 7-day BTC volatility surpassing 100%.

Bitcoin’s 30-Day Volatility (Source: Alphractal)

Furthermore, BTC Options pricing reflected that fear is being priced in, not merely discussed.

The report indicated that volatility smiles were pricing their largest premium for puts since November 2022, suggesting that traders were willing to pay a premium for crash protection even after a rebound.

When puts become this costly, it typically indicates two concurrent sentiments: concern about sharp downward movements and doubt that dips will be orderly.

Spot ETF flows provide a second, less technical perspective on sentiment, and they appear mixed rather than convincingly supportive.

The SoSo Value daily spot Bitcoin ETF table showed outflows returning during key sessions this week, including net outflows of approximately $276.3 million on Feb. 11 and around $410.2 million on Feb. 12, with several funds reporting negative returns.

These figures are significant as the ETF wrapper has become a primary conduit between traditional portfolios and Bitcoin exposure. When it experiences outflows, it can weaken the spot bid, even if offshore markets are actively trading.

Essentially, the message is clear: BTC’s selling pressure is not diminishing, and a stable demand for the leading cryptocurrency has not reestablished itself.

In this context, bearish derivatives positioning can remain prevalent, and short squeezes can occur without evolving into sustained upward trends.

Three potential paths ahead: squeeze, grind, or breakdown

Given the above, BTC’s next movement may depend less on any single funding print and more on whether the market transitions from liquidation-driven repositioning to stabilization.

In this context, traders are outlining the next phase in three broad scenarios.

The first is a squeeze rally that encounters overhead resistance.

In this scenario, positioning is overly one-sided, and deeply negative funding serves as fuel. If spot demand improves, Bitcoin could retest the upper boundary of the $60,000-$72,000 corridor and approach $79,200, the True Market Mean identified by Glassnode.

Following that, the critical test would occur above that level, where Glassnode’s overhead supply clusters fall within the $82,000 to $97,000 range. The narrative in this case is not a straightforward return to a new bull market; it is a reflexive rally into a zone filled with potential sellers.

The second scenario is a range grind that aligns with the perspective that risk sentiment has not fully recovered.

In this situation, the funding rate remains volatile but trends toward neutrality as open interest and leverage stay subdued following repeated washouts.

In this environment, short crowding can still trigger upward bursts, but inconsistent spot flows and ongoing hedging demand prevent rallies from developing into trends.

The third scenario is a structural breakdown from BTC’s current levels.

If the $60,000 to $72,000 corridor fails decisively, valuation gravity shifts toward the approximately $55,000 realized price anchor identified by Glassnode, particularly if macro risk-off conditions flare up again while options continue to price elevated downside.

Meanwhile, macroeconomic factors remain a constraint on all three scenarios. With the Federal Reserve maintaining rates at 3.5% to 3.75% and explicitly indicating heightened uncertainty, crypto’s sensitivity to broader risk conditions remains significant.

This is part of the reason this has evolved into a high-convexity environment where overcrowded shorts can trigger sudden upward volatility, while defensive hedging and fragile liquidity can still drive prices lower in bursts.

For the time being, the prevailing theme is clear: traders are increasingly positioned to benefit from downward movements, and the market is volatile enough to either penalize or reward them swiftly.

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