Was Yesterday’s Drop a ‘Long Squeeze?’ Bitcoin (BTC) On-Chain Analysis

BeInCrypto takes a look at different Bitcoin (BTC) on-chain indicators that relate to futures trading, in order to determine if they were the reason for the Nov 10 drop.

Funding rate

Funding rates measure the payment that futures traders are required to pay in order to keep an open position. A positive funding rate means that traders with an open long position pay a premium, while the same rings true for short positions and negative funding rates.

The funding rates have been positive for the past thirty days. This is somewhat unusual, and shows very strong conviction in the market. Funding rates remained positive, even despite the drop from Oct 20 to 27.

Funding rates often reach really high levels close to market tops, likely due to euphoria. This was the case on Oct 20 and Nov 2 (black arrow). This often causes “long squeezes”, an event in which a large portion of long traders are stopped out due to a sharp fall in price. One such squeeze transpired on July 25, however it was a “short squeeze” instead of a “long squeeze”.

However, the rate was only 0.022% yesterday, so a high funding rate does not seem to be the reason for the drop.

Futures open interest measures the USD value allocated in futures contracts. It does not differentiate on whether those funds are allocated in short or long positions. Since the funding rate is positive, it is likely that the majority is on long positions.

Open interest reached a monthly high on Nov 8 and has been decreasing since. Similarly to the funding rate, open interest was not unusually high on Nov 10, thus the conditions were not present for a ”long squeeze”.

Long liquidations

The number of BTC long liquidations best illustrates the fact that the majority of open interest was likely on long positions. Futures long liquidations reached a high of $90 million on Nov 10. This was a new monthly high.

Furthermore, when compared to short liquidations, long liquidations amounted to 86% of the total liquidations on Nov 10.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

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