Bitcoin's Negative Funding Rate Could Indicate Potential Short-Squeeze Rally Past $70K
Despite BTC maintaining its range-bound movement as funding rates shift into negative territory and open interest remains stagnant, market indicators suggest conditions are forming for a potential short-squeeze toward $70,000.
During Monday's New York trading hours, Bitcoin (BTC) dropped to a weekly bottom at $64,111, breaking through the range support levels that were originally established on Sunday night. Notwithstanding this decline, the digital asset's price movement continues to fluctuate tightly within a three-week trading corridor spanning from $65,000 to $71,000.
Data from the derivatives market reveals an evident absence of bearish momentum that would drive a more substantial downward correction, whereas the positioning of liquidity levels could potentially define the next significant price movement on the opposite end of the current range boundaries.
Upside liquidity could become the next target for Bitcoin traders
The latest downward price movement cleared out liquidity positioned around the $64,000 level and resulted in approximately $240 million worth of long position liquidations. Notwithstanding this sell-off activity, Bitcoin has continued trading within the established boundaries that have held firm since Feb. 6. Range-bound trading patterns frequently create conditions for an explosive breakout move, particularly when volatility undergoes compression.
A contraction in the Bollinger Bands can be observed, which indicates diminishing volatility levels and sets the stage for a potential explosive price movement.
An examination of liquidity metrics reveals substantial asymmetry in the market. Approximately $1 billion worth of long positions would face liquidation should the price decline to $63,000. By comparison, over $3.5 billion in short positions stand exposed if Bitcoin retests the $70,000 level. This configuration establishes visible liquidity magnets at both extremes of the trading range, although the accumulation is considerably heavier toward the upper boundary.
Open interest in Bitcoin, which measures the aggregate value of active futures contracts, has stabilized around recent lows. Market participants are refraining from aggressively establishing new positions following the decline, suggesting many traders may currently be observing from the sidelines.
The funding rates have shifted into negative territory on the four-hour timeframe, which means short position holders are now compensating long position holders. This transition suggests that trader positioning has adopted a more defensive stance while price action continues maintaining support at the range bottom, creating conditions favorable for a short squeeze should upside liquidity zones become targeted.
Market analyst Lennaert Snyder observed that Bitcoin "finally grabbed the $64,500 liquidity," further commenting that successfully reclaiming the $67,751 high could potentially pave the way toward $76,971, with intermediate profit-taking targets identified throughout the move. However, a rejection occurring near that threshold would invite near-term downside pressure back toward the lower range boundaries.
Bitcoin might touch $63,000 prior to bouncing back
The one-hour timeframe chart draws attention to the order block situated around $63,000, representing a price zone where substantial buying interest previously emerged. Order blocks identify areas characterized by concentrated trading activity and frequently serve as critical inflection points when prices retest these levels.
A quick dip into the $63,000 area would eliminate the outstanding long liquidity and provide a test of that demand zone. Should buyers successfully defend this level, the price could pivot back toward the middle of the range and potentially challenge the $70,000 resistance cluster.
In the meantime, Christopher Inks, founder of TexasWest Capital, highlighted the forming bullish relative strength index (RSI) divergence pattern visible on the daily chart, accompanied by increasing volume and a wick formation beneath the range support level.
A positive daily candle close above the recaptured support level could potentially reinforce the argument for another challenge of the range highs.
