Bitcoin short positions across centralized exchanges have surged to their most extreme levels

Short positions on centralized crypto exchanges have surged to their most aggressive levels since August 2024, when Bitcoin walked into a multi-month bottom of $55,000 before surging to its year high $106,000 just four months later.

According to aggregated funding rate data compiled by Santiment Feed, market-wide positioning is currently leaning heavily towards the downside. At the time of this reporting, Bitcoin was trading at the $66,500 level after declining 47.3% from its October 2025 all-time high.

Santiment’s analysis indicates that when funding rates turn negative in perpetual futures markets, short sellers are paying traders who are placing bets on upside price movement. The deeper the negative reading, the more aggressive the short exposure.

Exchange funding rates drop into negative territory, more pain ahead?

Per Santiment’s “Funding Rates Aggregated By Exchange” chart, futures markets in Q3 2024 plunged deeply negative as traders bet on bitcoin’s price decline. Between August 1 and 6 that year, Bitcoin had fallen in value by a whopping $12,000, causing sentiment in derivatives markets to deteriorate.

However, Bitcoin reversed its doom run and climbed back to its initial $66,000 price range 20 days later. Short positions were squeezed as the price began climbing, and overcrowded bearish bets were liquidated, forcing traders to buy back positions. According to Santiment, this helped push bitcoin upwards by 83% over the following four months.

Looking at the current setup, the market might be in for another 80% price run, although Santiment reiterated that en masse short bet liquidations are not a clear indicator of a bullish phase start.

According to the Santiment chart, there have been sustained negative funding spikes throughout late January and early February. The chart shows a sequence of lower highs and lower lows through November, December, and January, but as BTC’s price compressed near $65,000, shorting pressure intensified.

“Extreme negative funding can set the stage for rapid price rebounds. Many short positions are opened with leverage, meaning traders are borrowing capital to increase potential returns. If price rises instead of falling, those leveraged shorts begin taking losses quickly. Once losses reach a certain threshold, exchanges automatically close the position to protect their systems,” the analysis read.

Sentiment spells echoes of Uptober’s liquidation event

In the October 10 event that wiped out $19 billion of leveraged bets, several centralized exchanges and DEXes experienced long liquidations that sent Bitcoin down by double-digit percentages. Following that decline, traders moved their positions to short and flipped the funding rate negative.

Bitcoin is now trading near $65,900, after briefly dipping closer to $59,000 during late January volatility. Negative funding spikes have clouded perpetual trades because market-wide sentiment is on the bears’ side.

Even though heavy shorting does not guarantee an immediate rally. It increases the probability of volatility if the price begins to move upward. Given the current positioning, a modest upside price move in bitcoin could hit markets if short liquidation thresholds reach levels seen during 10/10.

“Due to the lack of confidence in markets, based on how other sentiment metrics are looking, we don’t see these short positions suddenly closing on their own. So a liquidation event from prices moving higher is the likely outcome,” Santiment said, concluding its prediction on X.

Bitcoin is almost in undervalued grounds

Since reaching its all-time high in October last year, Bitcoin has been in a downtrend for approximately four months. The coin’s Market Value to Realized Value (MVRV) ratio is near 1.1, indicating traders consider its current price fair.

When the MVRV ratio fell below 1 in prior market cycles, Bitcoin was considered undervalued. The current reading suggests price is approaching those grounds, but this cycle is very different from previous ones.

Bitcoin did not surge into an extended overvalued zone before peaking in October. If the market never entered an extreme overvaluation phase, it means the bottom formation varies from what traders saw during previous cycles. 

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