Bitcoin leads cryptocurrency back above $3 trillion as risky bets grow

By Suvashree Ghosh and Sidhartha Shukla

 

Digital assets have reclaimed $3 trillion in market value for the first time since January after Bitcoin’s stunning rally, but traders are also piling into leveraged bets in perpetual futures, increasing the risk of rapid price swings.

 

The market has added more than $740 billion in value since the US Treasury’s announcement last month that it would increase buybacks of long-dated bonds, according to CoinGecko data. Leverage is building alongside the gains. Open interest in perpetual futures across tokens has climbed to nearly $160 billion, the highest since late October last year, Coinglass data show.  

 

“If open interest and funding keep accelerating faster than spot demand, the risk of a leverage-driven pullback increases,” said Ryan Lee, chief analyst at Bitget. “Macro has not stopped mattering; for now, Bitcoin-specific demand has been strong enough to outweigh those pressures.”

 

More than $920 million in bearish bets were liquidated on Monday as prices surged. A continued unwinding of short positions could fuel a squeeze, as traders rush to buy back assets to close losing bets, adding further upward pressure on prices. Yet open interest continued to rise, suggesting new leveraged positions are entering the market even as shorts are forced out.

 

“A squeeze normally destroys open interest,” said Rachael Lucas, an analyst at BTC Markets. “This one didn’t, which means positions are being replaced immediately. Traders are chasing this, not de-risking into it. That’s why the next 5% in either direction will be faster than people expect.”

 

Bitcoin retreated to as low as $85,093 on Tuesday after surging nearly 8% a day earlier to $87,381, its highest level since late January. 

Reversal Risk

Perpetual futures — contracts with no fixed expiry — are the largest segment of crypto trading by volume and an important gauge of speculative positioning.

 

The current combination of open interest — the number of open contracts — rising while short positions are being closed suggests the rally isn’t simply a case of traders closing bearish positions and reducing leverage. They’re being replaced by fresh exposure, which means a price move either way could trigger a wave of short liquidations or an unwinding of leveraged longs.

 

“The main thing to watch is leverage running ahead of spot,” said Caleb Lin, senior sales trader at QCP Group. “Rising perp open interest is healthy when spot is coming with it. When it builds faster, the market becomes reflexive: a modest reversal triggers long liquidations, which push prices lower and force further deleveraging.”

 

That’s the same mechanism that led to the move upward through $83,000, forcing shorts out, Lin added. “Long-side leverage building against thin spot sets up the same conditions in reverse.”

 

The latest move also comes as institutional interest has picked up in Bitcoin and select smaller tokens. US spot Bitcoin exchange-traded funds pulled in $999 million on Monday, the largest single day of net inflows since Oct. 6 — when the token reached its all-time high above $126,000. After facing steep outflows early last week, the ETFs swung positive on Thursday and Friday, attracting $593 million.

 

Altcoins have joined the rally, with privacy-focused Zcash climbing sharply while HYPE, the native token of the Hyperliquid blockchain, surged to a record high.

 

For now traders aren’t convinced about the sustainability of the rally. “Short squeezes produce price, they don’t produce holders,” Lucas said. “I will be watching whether spot demand replaces the forced covering over the next week.”