📉 Persistent Decline in Open Interest on Binance:
* Since the end of July, open interest on Binance derivatives has dropped by nearly -12%, indicating a significant cooling in speculative activity.
* This decline is not merely a technical fluctuation—it reflects a broader sentiment among retail traders who appear increasingly reluctant to initiate new positions.
* Instead, they are opting to close existing ones, even as Bitcoin maintains its upward trajectory.
A Wave of Short Covering Suggests Painful Exits:
* Given the context of Bitcoin’s upward momentum, it’s reasonable to infer that most of the position closures were short positions being forcefully or voluntarily exited, often at a loss.
* This scenario reflects typical retail behavior during trend reversals — instead of participating in the rally, traders rush to exit losing bets, inadvertently fueling further upside.
Decline in New Positions Reduces Speculative Betting Power:
* The drop in open interest has also led to a sharp decline in new speculative bets on Bitcoin’s price action.
* This vacuum in leveraged speculation appears to have cleared the path for spot market participants — such as institutions and long-term investors — to re-enter the market with sizeable long positions, without facing the usual volatility generated by overcrowded derivative trades.
🧊 Funding Rate Chart Confirms Retail Sentiment Shift:
* As shown in the chart, Binance's funding rates have cooled significantly to around 0.002%, while Bybit’s have even turned negative to -0.009%.
* In fact, many are now betting against the trend, opening short positions at increasingly worse prices, potentially setting the stage for another short squeeze.
🔚 Historical Patterns Point to More Upside:
As derivative traders become increasingly pessimistic the market often rallies further, sidelining retail speculators and rewarding patient spot buyers.
Written by Amr Taha
