Bitcoin and Ethereum have just undergone a strong correction, as Long positions using high leverage were simultaneously liquidated, turning Funding Rates upside down. The market is beginning to show signs of recovery with more stable investor sentiment.
Sell-offs, liquidations, and rapid shifts in sentiment have plunged the cryptocurrency market into a deep correction cycle, but the recovery of Funding Rates alongside solid support price levels is opening up recovery prospects.
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Bitcoin and Ethereum both plunged, with Open Interest sharply decreasing in 48 hours due to mass liquidation of Long positions.
Funding Rates quickly shifted from a rare negative level to positive recovery, indicating that market sentiment has somewhat stabilized.
Previously liquidated price zones can become short-term psychological resistance levels; however, the risk of deep declines has eased.
What has happened in the cryptocurrency market in recent days?
Within 48 hours, Bitcoin and Ethereum witnessed a deep price drop alongside an unprecedented liquidation of Futures positions since the beginning of the year. Many leveraged traders were liquidated as prices plummeted.
Theo CoinGlass, chỉ trong hai ngày, Open Interest của Ethereum giảm gần 10 tỷ USD, còn Bitcoin thì mất hơn 5 tỷ USD. Đây là con số rất lớn khi nhiều tuần tích lũy hợp đồng Futures dường như bốc hơi chỉ trong vài giờ.
Severe corrections often provide opportunities to purge the market of risky leveraged positions, establishing a stable foundation for a new trend.
Willy Woo, On-chain analyst, quoted from Twitter on August 2nd, 2025
This sudden drop is marked by 'panic selling', where Long positions are liquidated in a domino effect. Many traders quickly exited the market, creating significant selling pressure. Uncertainty spread as Funding Rates reversed and the Futures order book became chaotic.
As a result, many weeks of accumulating Futures positions in both Bitcoin and Ethereum were wiped out in an instant, forcing many traders to be more cautious and prioritize risk management ahead of strong market volatility waves.
How much Open Interest have Bitcoin and Ethereum lost?
Open Interest of Ethereum has decreased by nearly 10 billion USD, while Bitcoin lost more than 5 billion USD in just 2 days. This is the most significant drop in recent quarters.
The analytical images on CoinGlass and TradingView show that money flow continuously withdrew from Futures contracts as prices fell. Long positions were widely liquidated, especially at the highest price levels of the previous week.
The liquidation lasted only 48 hours, but wiped away the results of many weeks of Futures contract accumulation, reflecting the risk when leverage is too high in a highly volatile market.
Coinalyze report, 2/8/2025
Not only did Open Interest decrease, but the ETH/BTC ratio also dropped from 0.0325 to 0.0307 after a strong increase in July. This indicates a rapid weakening of Ethereum's relative strength against Bitcoin as the market fluctuates.
How do Funding Rates change during a crisis?
On August 1st, on Binance, the Funding Rates for Ethereum and Bitcoin both turned negative, marking extreme pessimism. Specifically, ETH fell to -0.006%, BTC hit -0.003% – levels rarely seen, indicating that the Short side is prevailing.
A negative Funding Rate means that short sellers must pay fees to hold their positions, which usually only occurs when the market is experiencing a 'long squeeze' – a series of rapid Long position liquidations. However, as of August 2nd, Funding Rates on exchanges have stabilized.
Funding Rates are a sentiment indicator; negative funding reflects fear and pressure from short positions. When it recovers to positive, it's a signal that the market is regaining balance.
Arthur Hayes, former CEO of BitMEX, answers a Bloomberg interview on August 2nd, 2025
The Aggregate Funding Rate of Bitcoin has risen to +0.0042, Ethereum reached +0.0063. This sign indicates that excessive selling pressure has eased, investors are beginning to rebuild their confidence and are poised to open new positions, creating expectations for the next recovery.
What indicates that liquidation zones are affecting prices?
Observing the Liquidation Heatmap for Bitcoin and Ethereum on CoinGlass clearly shows a bright yellow area around the 117,000 USD mark for BTC and 3,600 USD for ETH as of August 2nd. These are price levels where many Long positions were consecutively liquidated, leading to a strong chain reaction.
Current prices are clustering just below these liquidation zones, forecasting a sideways accumulation trend while also creating large psychological resistance levels in the short term. Below these new price levels, no new 'liquidation bands' appear, indicating that the risk of strong 'shakeouts' has likely passed the most severe phase.
The market scenario following mass liquidations is usually accumulation around strong support levels before a clear new trend emerges.
Cathy Wood, CEO of ARK Invest, reports ARK Big Ideas 2025
Traders need to pay attention to the price levels that have just been liquidated with high selling pressure, as when prices recover, the profit-taking force of traders who are 'stuck' here can cause the market to face strong resistance before reaching new upward levels.
Why do mass liquidations have a strong impact?
Mass liquidations often stem from many traders using high leverage. When prices drop past a certain threshold, a multitude of Long positions are automatically liquidated, creating additional selling pressure that continues to push prices lower.
This phenomenon creates a domino effect, sweeping up positions with less leverage, pulling Open Interest down, and spreading panic sentiment. Each shakeout like this will make risk management the number one priority for professional traders.
Large-scale liquidations often blow away loose positions and test the true strength of demand in the market.
Ki Young Ju, CEO of CryptoQuant, quoted in the CryptoQuant Insights report on August 1st, 2025
History has recorded that after 'long squeezes', the market usually recovers due to new capital returning, or large investors taking the opportunity to accumulate at low price levels.
How does the recovery of Funding Rates affect subsequent developments?
When Funding Rates turn positive, buyers (Long) begin to pay fees to hold positions, indicating that expectations for price increases are being reinforced. Many experts suggest this is a sign that a technical recovery or at least more stable accumulation will occur.
The likelihood of a 'short squeeze' occurring after a 'long squeeze' has also been a reality in the past, especially when Open Interest starts to rise again from the bottom, Funding Rates turn positive, and trading volumes recover.
For example, data from Coinalyze (8/2025) indicates that Funding Rates remained positive for two consecutive weeks after large 'long squeezes' in the first half of the year, often coinciding with a price surge.
How can psychological resistance levels affect recovery prospects?
Price levels at which many Long positions are liquidated often become strong psychological resistance. When the market recovers close to these levels, the profit-taking or cutting losses pressure from traders still stuck in orders can cause prices to oscillate or temporarily reverse.
The common scenario is that prices accumulate below liquidation bands, laying the groundwork for a new 'breakout' if strong money flow or positive news emerges. Conversely, if the money flow is weak, resistance becomes a 'stubborn fortress', prolonging the sideways phase.
Factors affecting after fluctuations: Recovery of Funding Rates indicates strong selling pressure, risky market. When it recovers to positive, it increases confidence. Rapid decrease in Open Interest, leverage cut, reduces systemic risk. OI recovery often coincides with price surges. Liquidation bands create significant supply pressure at corresponding price levels. Prices need to accumulate and then break resistance.
What signs indicate that the cryptocurrency market has passed its worst phase?
First, Funding Rates regain positive levels, proving that the buying and selling sides are balanced. Next, Open Interest stops decreasing, and prices create accumulation zones instead of continuing to drop. Third, in areas that have been heavily liquidated, no new liquidation bands appear below.
The emergence of new money flow, alongside recovery signals from on-chain indicators, is also a factor that reinforces the belief that the adjustment cycle has ended, paving the way for a new trend or at least a more sustainable accumulation state compared to the panic sell phase.
Compare the impact of liquidations between Bitcoin and Ethereum
Both are victims of excessive leverage and FOMO sentiment, but the recent tremors show that Ethereum's sensitivity is greater than Bitcoin's, as reflected in the double decrease in Open Interest over the same period.
The recovery strength of Bitcoin is often faster due to greater participation from large institutions and 'whales', while Ethereum's volatility heavily depends on money flow from DeFi and decentralized markets.
Bitcoin Ethereum Open Interest index declines 5 billion USD ~10 billion USD Funding Rate bottom -0.003% -0.006% Recovery potential higher Usually slower
According to data from CoinGlass & Coinalyze (8/2025), the Bitcoin market plays a leading role in trends, while Ethereum and Altcoins reflect a greater degree of risk during strong fluctuations.
Frequently Asked Questions
Why is a negative Funding Rate a risk warning?
A negative Funding Rate indicates that short sellers are prevailing and the market is leaning towards pessimism. If prolonged, it can create additional downward pressure and liquidation of leveraged positions.
How to identify when the market has passed its worst correction phase?
When the Funding Rate shifts from negative to positive, Open Interest stabilizes or recovers, and accumulation price zones form bottoms, signaling that the peak adjustment phase has passed.
How does high leverage increase the risk of liquidation?
High leverage causes losses to escalate quickly when prices move against positions, making it easy to be automatically liquidated when surpassing the minimum margin threshold.
What significance do previously liquidated price thresholds have for investors?
This is the area where traders buying in are 'stuck in orders', which often plays a strong resistance role when prices recover due to increased selling at these levels.
How long does it take for the Funding Rate to recover after large liquidations?
Typically, Funding Rates recover within 1-3 days if there are no new unusual fluctuations or unusual selling pressure.
Why does Ethereum experience stronger fluctuations than Bitcoin during shakeouts?
Ethereum has a higher leverage trading ratio and relies more on money flow from DeFi, making it more susceptible to large fluctuations when market sentiment shifts.
What should be done when a 'liquidation band' appears on the Heatmap?
One should be cautious about placing stop losses and avoid opening large positions at these levels, as this is where the risk of volatility can re-emerge at any time.
Source: https://tintucbitcoin.com/bitcoin-ethereum-tang-15-ty-usd-bay/
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