What is a short squeeze? A 30% decrease in Bitcoin's unsettled balance indicates a market bottom signal

Recent data indicates significant changes occurring in the Bitcoin derivatives market. Understanding what a short squeeze is and how it is currently impacting the market is crucial for reading market cycles. Since fall 2025, open interest in Bitcoin has decreased by approximately 30%, marking a major shift in market leverage conditions.

Open Interest Drops 30% from $15 Billion, Accelerating Leverage Unwinding

In October last year, the open interest in Bitcoin derivatives exceeded a record high of $15 billion. This figure symbolized an overly leveraged market participant base. Over the following approximately three months, a 30% decline was recorded.

According to data analysis from CryptoQuant and Cointelegraph, this sharp decline is seen as a clear signal of leverage unwinding. It is a process of gradually removing excess risk accumulated in the market. Historically, such rapid declines have been associated with market bottoms. In other words, the current leverage unwinding could lay the foundation for a stronger bullish trend.

Market Turning Point Indicated by Short Squeeze

A short squeeze occurs when short position holders (sell positions) close their positions en masse to avoid losses. Currently, the market shows Bitcoin prices rising while open interest decreases. This suggests a large-scale liquidation of short positions.

This short squeeze could positively influence the market in multiple ways. Because the price increase is supported not by forced buying pressure from leverage trading but by solid demand from spot buying. The current Bitcoin price is at $88,540, which is believed to be driven by such organic price formation.

Structural Analysis of the Derivatives Market: The True Bullish Trend Is Yet to Come

However, derivatives trading provider Greeks Live warns that the market structure has not yet fully transitioned into a bullish phase. According to their analysis, the current trading structure is still close to a passive response to rapid price increases, indicating that a genuine bullish trend is still ahead.

If Bitcoin’s price were to decline in the future, open interest could decrease further, potentially leading to deeper leverage unwinding and prolonged adjustment phases. Conversely, if prices continue to trend steadily, market optimization through short squeezes could progress, leading to a more sustainable bullish market. The market is precisely at such a turning point.