Crypto Funding Rates Plunge to Bear-Market Lows - What This Means for Your Portfolio

Funding rates across major crypto exchanges have cratered to levels not seen since the depths of the last bear market.

The Contango Collapse

Perpetual swap funding rates turned negative across Bitcoin and Ethereum markets this week. Traders are paying to short rather than getting paid to go long—a complete sentiment reversal from the bull market frenzy.

Leverage Liquidation Looms

When funding rates disconnect from spot prices, it creates a powder keg scenario. Over-leveraged positions face imminent liquidation if volatility spikes. The market's basically telling traders: your margin calls are coming.

Institutional Indifference

Meanwhile, traditional finance keeps pretending they invented yield farming—while their crypto desks quietly adjust risk models behind closed doors. Because nothing says sophisticated investing like paying interest to bet against an asset.

This isn't just a technical indicator flashing red. It's the market's way of separating speculative hype from actual conviction. Time to see who's swimming naked.

What the data says 

In 2022, the crypto industry witnessed a particularly brutal bear market that started with the Terra/LUNA collapse in May, followed by the FTX case in November, which triggered a liquidity crisis and caused BTC price to drop to $16K lows. 

In the months that followed, funding rates stayed deeply negative amid mass liquidations and fears that it was over for BTC. 

The 2025 flash crash mirrored those sentiments driven by a “pronounced deleveraging” across BTC and ETH, and a sharp decline in funding rates that analysts say indicates investors are de-risking from aggressive long (bullish) positions, and that Leveraged trading volume in the market has decreased significantly.

The trend reportedly signals a period of market rebalancing and liquidation of excessively risky positions, which could reduce price volatility in the short term and contribute to a healthier market structure in the medium term. 

While perpetual low funding rates highlight a decline in trader interest and a potential continuation of market liquidity shortages, the bullish sentiment linked to BTC has barely diminished, and it is already recovering. 

Glassnode’s BTC Long/Short Bias chart, tracking the aggregate net positions of the largest BTC traders on Hyperliquid, showed a steep rise in net shorts from October 6, long before Friday’s disaster. Levels have since recovered, even though they remain deeply negative. 

Analysts continue to advise caution as the market struggles to rebalance itself. 

Crypto tokens rebound, but doubts remain 

The flash crash from late Friday wiped out nearly $19 billion in crypto positions and has been tagged the largest single-day liquidation on record. 

However, as earlier stated, the market is already looking steadier with a bounce forming as both the US and China moved to water down tensions even though they have refused to come to an agreement. 

Alternative cryptocurrencies like BNB, ADA, and Doge have been leading the rebound. Both ADA and DOGE have surged nearly 10% in 24 hours thanks to discounted valuations enticing bargain hunters while BNB has blown past its previous all time high to form a new one at $1,369.99 today. 

Bitcoin climbed 3.3% over the past 24 hours to about $115,007 while Ether surged 8.7% to $4,151. The strong performance confirms that the broader bullish trend is still intact, even though the volatility has reset sentiment.

“What we just saw was a massive emotional reset,” Justin d’Anethan, head of partnerships at Arctic Digital claims. “Volatility cuts both ways — traders were punished on the way down and on the snap back. But the longer-term structure is intact. ETF inflows remain strong, exchange balances NEAR cycle lows, and the broader narrative is arguably stronger after the washout.”

While the upward moves are great, observers have warned that the industry is not out in the clear yet. In fact, there are now reports that the “OG Bitcoin whale” who shorted 20 minutes before Trump announced news that crashed the market is back.

The OG bitcoin whale who shorted before the market crash is back.

He added another $70,000,000 to his Bitcoin short position.

For those who don't know, this whale never fully closed his Bitcoin short. pic.twitter.com/EbFwWsxvhR

— Ted (@TedPillows) October 12, 2025

He has now reportedly added another $70,000,000 to his Bitcoin short position, which was never fully closed in the first place. What this means will become apparent in time, but experts advise caution as it could herald another drop.

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