Bitcoin has recovered and settled above the $75,000 area after the latest rebound, but derivatives data shows that the recovery lacks widespread conviction.
Bitcoin is in the middle of a credibility problem
Bloomberg claims Bitcoin is facing a credibility problem right now. Funding rates on perpetual futures have remained negative for about a month and a half, meaning leveraged traders are still paying to stay short even as spot rates rise.
This split is among the biggest this year between spot price action and how derivatives traders position. Bitcoin is up nearly 14% from its April lows, helped by renewed flows into U.S.-listed ETFs and new accumulation by Michael Saylor’s bitcoin treasury firm, MicroStrategy.
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This gap between positioning and price rarely lasts long, and usually ends brutally for someone. When Bitcoin continues to rise, traders who short the move take losses and may be forced to rush out and buy back their positions, resulting in a sudden, self-reinforcing spike known as a short squeeze. The longer this confrontation lasts, the more violent the eventual reversal becomes.
BTC OI-Weighted Funding Rate. Source: Bloomberg.
Data provided by Bloomberg shows that net inflows into U.S.-listed spot bitcoin ETFs have reached about $332 million so far this week, with nearly $26 million added on Thursday alone. By 8 a.m. in London on Friday, Bitcoin was trading near the $75,000 level.
This has been one of the longest bearish funding streaks since the post-FTX capitulation in late 2022, when sentiment was similarly washed out.
Short squeeze risk
“Traders are building short positions and betting against a breakout, creating conditions where a short squeeze becomes more likely if bullish momentum continues,” Vetel Lund, head of research at K33, told Bloomberg.
The current structure resembles a textbook compression setup. Passive financing shows that short sellers still dominate leverage and pay to stay in the trade, even as the price of Bitcoin rises. This slow grinding means that many of these shorts are already underwater but have not yet given up, leaving them vulnerable. At the same time, spot liquidity appears weak, so any sharp movement could quickly spread across derivatives and turn into a rapid, cascading squeeze.
Bloomberg explains that the heavy short backdrop looks even more fragile given the wave of bullish catalysts hitting the market at the same time, any one of which could trigger some sort of bullish jolt that forces bears out of their positions.
Minor recovery for Bitcoin?
MicroStrategy has disclosed two purchases worth a total of $2.6 billion in just the past two weeks, a steady supply that Bohan Jiang, senior derivatives trader at FalconX, says has helped support prices. Furthermore, Charles Schwab revealed plans to introduce spot cryptocurrency trading this year and floated the idea that clients could allocate up to 8.8% of their portfolios to Bitcoin. This indicates how much new order is still waiting.
Over the past week alone, US-listed Bitcoin ETFs have raised more than $800 million, fluctuating from the outflows seen earlier in the year to strong net demand. Each new phase of ETF buying pushes prices higher and makes it more expensive for short sellers to sit on losing trades, adding to the squeeze pressure that has been quietly building in the derivatives market for weeks.
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According to Bloomberg, it is still possible for bearish traders to rally if this latest bounce eventually breaks down. Derrbit data shows that options desks are paying for downside protection, with notable open interest in puts clustering around $60,000 and $50,000. They called this a soft recovery.
Laurence Frausen, research analyst at Kaiko, believes Bitcoin could see a rally that is sure to “surprise some people.” Fraussen claims that a break above $76,000 could see BTC extend towards $85,000.
At the moment of writing, BTC trades for almost $76k on the daily chart. Source: BTCUSDT on Tradingview.
Cover image by Perplexity. BTCUSDT chart from Tradingview.
