Bitcoin derivatives traders are increasingly looking for more downside than a clean rebound as the major cryptocurrency continues to trade in a narrow range below $70,000.
According to crypto slate According to the data, BTC price bottomed out at $65,092 in the past 24 hours, but has since recovered to $66,947 as of this writing. This led to a week of tight trading that failed to provide any momentum to the lead cryptocurrency.
That vulnerability is most evident in derivatives, where traders are increasingly leaning into short positions aimed at profiting from further declines rather than clean rebounds.
This setup creates a familiar tension in the crypto market. Congested shorts could fuel a sudden rally, but a market shaped by recent liquidation trauma and volatile spot demand could also be stuck in defensive mode for longer than contrarian traders expect.
Funding shows crowded downside trading
Santiment’s Funding Ratio Index, which aggregates major exchanges, has fallen into negative territory, indicating that shorts are paying longs to maintain their positions.
The cryptocurrency analysis firm described the decline as the most extreme wave of short positions since August 2024, a period that coincided with a big trough and a sharp multi-month rally.
Perpetual futures have no expiration date, so there is a funding rate. Exchanges use periodic funding payments to match the perpetual price with the spot price.
When funding is positive, leveraged longs pay shorts. If negative, shorts pay longs. Significantly negative funds usually indicate a one-sided trade. Crowds often use leverage to pay for short stays.
This creates a risk of squeezing even with weak tape. If the spot price rises, even by a small amount, you may be forced to buy back due to losses on your leveraged short. These buybacks could push up prices and trigger additional mandatory coverage.
However, negative financing does not guarantee upside. This is a measure of how tilted the positioning is, not a measure of how much spot demand is waiting.
Even in early 2026, some signals still read as defensive, which helps explain why the bearish fundraising persists.
October’s “10.10” crash continues to shape risk appetite
The reason for the momentum in short selling trades is rooted in the trauma of the historic deleveraging in October 2025 (or “10/10” for event traders).
crypto slate We previously reported that over $19 billion of cryptocurrency leverage was liquidated in about 24 hours that day.
This episode was caused by a macro shock (trade war tariff headlines) that hit an already crowded positioning, which then collided with the disappearing order book depth.
This context is important because it helps explain why extreme negative funding can last longer than contrarians expect.
After repeated liquidation cascades, many traders treat the rally as an opportunity to hedge, reduce exposure, or push shorts into resistance.
In that environment, bearish positioning may become the default position rather than tactical trades that quickly reverse.
Glassnode’s latest weekly framing captures the push and pull. The company explains that Bitcoin is absorbed within a “demand corridor” between $60,000 and $72,000, a range that has been repeatedly tapped by buyers.
But it also warned that overhead supplies could limit relief rallies, pointing to large supply clusters with unrealized losses of $82,000 to $97,000 and $100,000 to $117,000.
Together these levels draw a map for traders. While there is room for pressure within the corridor, there are also clear zones where previous buyers can expect strong selling.
Option pricing shows fear is being paid
The derivatives market, which goes beyond financing, is becoming more cautious.
Deribit’s weekly market report showed that BTC funding has fallen to negative levels for the first time since April 2024, with short-term futures trading at a deep discount compared to the spot, a pattern consistent with bearish demand for leverage.
The report states that downside hedging demand has surged, with seven-day BTC volatility exceeding 100%.
Furthermore, the pricing of BTC options showed that fear was being priced in, not just being discussed.
The report said Volatility Smile is the highest put premium price since November 2022, indicating that traders are willing to pay a premium for crash protection even after a pullback.
When a put becomes this expensive, it usually reflects two things at once. They are fears of a sharp decline and skepticism that the decline will be orderly.
Spot ETF flows provide a second, non-technical window into analyzing sentiment, and they look more complex than convincingly supportive.
SoSoValue’s daily Spot Bitcoin ETF table shows that outflows returned in major trades this week, including net outflows of approximately $276.3 million on February 11th and approximately $410.2 million on February 12th, with multiple funds reporting negative returns.
These numbers are important because the ETF wrapper has become the central communication mechanism between traditional portfolios and Bitcoin exposure. A spill could weaken spot bidding even if offshore markets are actively trading.
Fundamentally, the message is clear: BTC selling pressure is not easing and a stable bid for the premier cryptocurrency has not been reaffirmed.
In that gap, bears’ derivatives positioning may remain dominant and a short squeeze could occur without turning into a sustained uptrend.
Three passes from here: Squeeze, Grind, Breakdown.
Given the above, BTC’s next move may depend more on whether the market moves from liquidation-driven repositioning to stabilization rather than a single fundraising.
Against this backdrop, traders are envisioning their next steps in three broad scenarios.
The first is a squeeze rally where you encounter overhead resistance.
In this scenario, the positioning is too one-sided and fueled by very negative funding. If spot demand improves, Bitcoin could retest the upper bound of the $60,000-$72,000 corridor and move closer to the true market average of $79,200 as identified by Glassnode.
Then the key test is on top of that, with Glassnode’s overhead supply cluster falling in the $82,000 to $97,000 range. The story in this case is not a clean return to a new bull market. It’s a reflexive move into an area crowded with potential sellers.
The second is a narrowing of the range, consistent with the view that risk sentiment has not fully recovered.
In this situation, funding rates remain volatile but drift toward neutrality as open interest and leverage remain subdued after repeated washouts.
In that world, short-term congestion could still cause a burst rally, but inconsistent spot flows and persistent hedging demand prevent rallies from turning into trends.
The third is a structural collapse of BTC from its current levels.
If the $60,000 to $72,000 corridor fails decisively, especially if macro risk-off flares up again while option prices continue to cut lower, valuation gravity will shift toward the realized price anchor of the glass node around $55,000.
The macro, on the other hand, stays lidded on all three passes. The sensitivity of cryptocurrencies to the broader risk landscape remains high, with the Federal Reserve keeping interest rates at 3.5% to 3.75%, clearly signaling heightened uncertainty.
This is part of why we have a high convexity regime, where overcrowded shorts can cause sudden upside volatility, while defensive hedging and weak liquidity can still send prices crashing down.
For now, the dominant theme is straightforward. Traders increasingly stand to profit from downside moves, and the market is volatile enough to punish them or reward them with speed.
(Tag Translation) Bitcoin
