Crypto Selloff Likely Triggered by Long Squeeze, Not Bearish Sentiment

Thursday’s decline in major cryptocurrencies appears to be driven by the unwinding of overleveraged long positions rather than an influx of new bearish bets.

The CoinDesk 20 Index (CD20), which tracks the largest and most liquid digital assets, dropped 6.8% over the past 24 hours. Bitcoin (BTC) slipped nearly 1% after failing to hold above the $120,000 level. Among altcoins, ether (ETH) declined 3%, XRP plunged 13%, and Solana (SOL) fell 8%.

The losses align with bearish signals seen on technical charts, but more importantly, they are accompanied by falling open interest in perpetual futures and persistently positive funding rates — a classic signature of a long squeeze.

According to data from Velo, XRP’s open interest dropped over 6% in just two days. Open interest in SOL, BTC, and ETH futures declined by 5%, 1.5%, and 2%, respectively. These figures reflect a de-risking of bullish positions rather than a surge in short activity. Velo tracks data across leading exchanges including Binance, OKX, and Bybit.

At the same time, funding rates for these tokens remain positive, suggesting that long positions are still paying shorts to keep positions open. This implies that futures are trading at a premium to spot prices, a signal of continued — if thinning — bullish sentiment.

Analysts note that a long squeeze often serves as a healthy reset for the market by flushing out excessive leverage. The current decline in open interest, alongside positive funding, indicates traders are closing long positions rather than initiating aggressive shorts.

If the pullback were driven by a bearish shift, funding rates would likely turn negative and open interest would rise as short bets increased. The absence of such trends suggests the recent volatility is more of a position shakeout than a broader sentiment reversal.

Overall, while prices are retreating, market structure data indicates that underlying sentiment remains relatively resilient.