Digital assets have regained $3 trillion in market value for the first time since January, following Bitcoin’s remarkable rally. However, traders are increasingly engaging in leveraged bets in perpetual futures, which heightens the risk of swift price fluctuations. The market has seen an increase of over $740 billion in value following the US Treasury’s announcement last month regarding the escalation of buybacks of long-dated bonds, as per the data available. Leverage is increasing in tandem with the gains. Open interest in perpetual futures across tokens has surged to nearly $160 billion, marking the highest level since late October of the previous year, according to data. “If open interest and funding keep accelerating faster than spot demand, the risk of a leverage-driven pullback increases,” said Ryan Lee. “Macro has not stopped mattering; for now, Bitcoin-specific demand has been strong enough to outweigh those pressures.” On Monday, over $920 million in bearish positions were liquidated as prices experienced a significant surge.
A continued unwinding of short positions could fuel a squeeze, as traders rush to buy back assets to close losing bets, adding further upward pressure on prices. Open interest has continued to increase, indicating that new leveraged positions are being established in the market, even as short positions are being liquidated. “A squeeze normally destroys open interest,” said Rachael Lucas. “This one didn’t, which means positions are being replaced immediately. Traders are chasing this, not de-risking into it. That’s why the next 5% in either direction will be faster than people expect.” Bitcoin retreated to as low as $85,093 on Tuesday after surging nearly 8% a day earlier to $87,381, its highest level since late January. Perpetual futures – contracts without a predetermined expiration date – represent the most substantial portion of cryptocurrency trading by volume and serve as a crucial indicator of speculative positioning.
The current combination of open interest – the number of open contracts – rising while short positions are being closed indicates that the rally is not merely a result of traders liquidating bearish positions and decreasing leverage. They are being supplanted by new exposure, indicating that a price movement in either direction could instigate a cascade of short liquidations or a reversal of leveraged longs. “The main thing to watch is leverage running ahead of spot,” said Caleb Lin. “Rising perp open interest is healthy when spot is coming with it. When it builds faster, the market becomes reflexive: a modest reversal triggers long liquidations, which push prices lower and force further deleveraging.” That’s the same mechanism that led to the move upward through $83,000, forcing shorts out, Lin added. “Long-side leverage building against thin spot sets up the same conditions in reverse.”
The latest move also occurs amid a rise in institutional interest in Bitcoin and certain smaller tokens. On Monday, US spot Bitcoin exchange-traded funds experienced net inflows of $999 million, marking the largest single day of inflows since October 6, when the token achieved its all-time high exceeding $126,000. Following significant outflows at the beginning of last week, the ETFs rebounded on Thursday and Friday, garnering an influx of $593 million. Altcoins have participated in the rally, with privacy-centric Zcash experiencing a significant increase, while HYPE, the native token of the Hyperliquid blockchain, reached an unprecedented peak. For now traders aren’t convinced about the sustainability of the rally. “Short squeezes produce price, they don’t produce holders,” Lucas said. “I will be watching whether spot demand replaces the forced covering over the next week.”
