The cryptocurrency market experienced a massive crash on August 5, following macroeconomic news and other finance markets amid recession fears. Crypto short-sellers have increased their positions as a bearish sentiment surged, creating a favorable scenario for a short squeeze.
Overall, derivatives crypto trading and open interest (OI) are leaning toward short positions, according to funding rates data from CoinGlass. The funding rate heatmap shows the top 30 cryptocurrencies ranked by OI have a clear dominance of negative funding APR.
Essentially, a negative funding rate means short sellers must pay an APR on their positions to long-position traders. This is made to balance the market’s incentives and is a usual cause of short squeezes. The opposite happens with positive funding rates when bull traders pay the bears to keep their positions open.
Picks for you
Right now, most digital assets have a neutral, negative, or highly negative funding rate, which suggests a possible incoming squeeze. If the prices surge to a certain threshold or the positions are kept too long, these shorts could be liquidated, causing a brief rally.
Short squeeze alert: Cryptocurrencies with the highest negative funding rates
Notably, Ondo (ONDO) has the highest negative funding rate among the top 30 cryptocurrencies ranked by open interest. The token’s short-sellers currently have to pay a 126.86% APR to ONDO bulls, which can trigger a short squeeze.
Celestia (TIA) has the second-highest APR for open shorts, with a -83.86% funding rate. Meanwhile, Bitcoin Cash (BCH), Worldcoin (WLD), and Avalanche (AVAX) follow the pack with -55.71%, -37.56%, and -32.79%.
However, it is important to understand that having negative funding rates or a high open interest in short positions does not guarantee a short squeeze; needing to meet other conditions for that to happen.
This scenario usually reflects the dominating sentiment that could be caused by negative fundamentals, driving the prices lower. Moreover, short-sellers can close their positions before liquidation, preventing the squeeze that requires an abrupt shift.
Investors and traders must be cautious as recession fears and global uncertainties loom over forex, cryptocurrency, and stock markets. These times can bring significant volatility and can invalidate analyses in a few hours.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
