Bitcoin’s recent price movement had a familiar characteristic. The market ran closest to vulnerability until the rally became leveraged, funding turned to support longs, and forced selling then prevailed.
BTC bouncing up and down in the $80,000 range is a result of futures positioning. According to the data, long Bitcoin liquidations this week amounted to around $794 million, with the level reaching around $87,800, with the “hot zone” of liquidations widening towards $80,000.
When you frame this in terms of derivatives, you see that perpetual futures are no longer a sideshow. Kaidaka estimates that BTC Purp accounted for approximately 68% of Bitcoin trading volume in 2025, while derivatives overall accounted for more than 75% of crypto trading activity.
Therefore, if the primary venue for price discovery is leveraged products designed for frequent repositioning, short-term price action will no longer depend on marginal spot demand, but on how risk is stored, funded, and then forced to unwind.
How Perpetual Futures Create a Liquidation Treadmill
Perpetual futures track spot through a funding mechanism. When the PERP price trades above the spot index, funding becomes positive and longs pay shorts. If the PERP price trades below spot, the funding turns negative and shorts end up paying out longs. This “funding” is essentially a periodic payment between long and short traders based on the difference between the market price of a perpetual contract and a spot index that is recalculated multiple times a day on an 8-hour cadence on the platform.
But financing is more than just price matching. This mechanism creates a stable incentive gradient to shape positioning. In green markets, traders use leverage to chase upward momentum. Criminals make it easy and the bills for holding that exposure are reflected in the funds.
If funding is persistently positive, it indicates that the long positions are sufficiently crowded that they are paying to maintain them. While this congestion is not inherently bearish or bullish, these leveraged positions have thinner error bars, making the market more sensitive to small downside moves.
The liquidation mechanism turns that sensitivity into a feedback loop. On Binance, liquidation begins when a trader’s collateral falls below the required maintenance margin to maintain the position. This is very important. When maintenance is violated, the exchange takes control of the position and sells it to the market to reduce risk. These forced sells push the price down and put pressure on the next layer of leveraged longs, causing further forced sells.
That loop is the treadmill. Traders re-enter on bounces because the pre-liquidation flush temporarily creates a sense of “cleaner” positioning, improving the risk-reward ratio. However, if the market remains volatile, the next price drop creates new leverage and the cycle repeats.
It also explains why intraday volatility seems so disconnected from the macro story. Catalysts can initiate movement, but the shape of movement is often determined by bina.
An academic study on the cryptocurrency PERP found that the perpetual market is associated with changes in spot liquidity patterns and increased trading intensity around funding settlement times, essentially proving the theory that PERP microstructure is important for short-term price formation. The actual interpretation is easy. When most of the activity is focused on Purp, the market becomes reflexive.
The long liquidation seen this week is a useful scale marker as it makes a move below $90,000 look like a leverage flush rather than a spot outflow.
Single print clean events do not exist in this type of market. The treadmill produces a sequence of sharp down legs, regular bounces, and a second down leg for deeper fluidity. The liquidation hot zone widening towards $80,000 shows how such a hunt works. Liquidity tends to concentrate at a level where many positions are forced out, and when order backlogs are thin, the market tends to seek pools of them.
Reading the Tape: Heatmaps, Open Interest, and What Breaks the Loop
The easiest way to visualize treadmill risk is to map where forced flow may exist.
Liquidation Heatmap is a tool that predicts potential large liquidation points by analyzing trade data and leverage levels and highlighting zones where liquidations are likely to be concentrated. These are not predictions, but reflect the important reality that liquidations are not randomly distributed across prices. Clusters cluster because leverage tends to cluster because many traders use similar levels, similar liquidation thresholds, and similar risk models.
The second tool you need is open interest (the total amount of futures contracts outstanding). Open interest is a measure of positioning and is not a directional signal in itself. The signal is created by combining it with price and funding. Rising prices due to increased open interest and increased funding often means that leverage is increasing in line with the trend. A fall in price due to a collapse in open interest suggests that a position is being closed, often through liquidation.
This means that if the market actually has less exposure to leverage below a certain level, a push into that zone may move from a forced sell to a discretionary buy more quickly. Traders should treat this as a hypothesis to test rather than a conclusion to accept. Tests are data. Whether open interest decreases significantly during a decline, whether funding is reset, and whether liquidation balances decrease after a flush.
So what makes a treadmill break?
Very few circuit breakers are durable. Sustained deleveraging manifests itself as lower open interest, less extreme funding, and smaller bursts of liquidations. Deep spot bids are slower and less reflective than purp positioning and can absorb forced flow. As the volatility regime changes, the incentive to engage in high leverage changes as the opportunity set compresses or expands. If we distinguish between derivative-driven intraday action and longer-term spot effects, we can capture the basic hierarchy here. This means that the culprit can steer the route and the spot will ultimately tend to determine whether the level is maintained.
Funding, open interest, and liquidation intensity are the three variables that spin the treadmill, and they typically move in a recognizable order. Funding is a measure of how crowded a trade is, as it is the price paid to maintain exposure when perpetual buying and selling deviate from spot standards.
Open interest adds a second layer of context to distinguish between a simple decline and actual risk reduction. Defining open interest as an open contract is easy, but its interpretation depends on price and interaction with funds. A significant drop in OI and a drop that coincides with a fund reset indicates deleveraging. Vulnerabilities often persist behind the scenes when prices fall despite sustained open interest and long funding support. Liquidation results will be a real confirmation of how active the forced selling is, and this week’s $794 million long liquidation amount is a solid benchmark for what a flush looks like at this stage of the cycle.
Heatmaps fit into that framework as a way to visualize where stress may be concentrated. Where positioning accumulates, liquidation also accumulates. Data showing that the liquidation “hot zone” widens toward $80,000, with thin leveraged exposure below, is most useful when matched against the same positioning signals. This means that diluting the exposure only matters if it is actually deleveraged, rather than immediately re-presented on the next bounce.
The final layer comes from separating offshore permanent activities from regulated futures markets. When Perp-driven recursion prevails, paths tend to be jagged and clear-cut. As spot demand begins to absorb the forced selling, the nature of the market changes and the treadmill loses traction.
(Tag translation) Bitcoin
