FTX collapse sees Bitcoin, Ethereum to be shorted the second and third-most amount

Bitcoin (BTC) is currently the third most shorted cryptocurrency, and Ethereum (ETH) is the second most shorted cryptocurrency, according to on-chain data.

Analyzing the average funding rate (%) set by exchanges for perpetual futures contracts, we can observe above that long positions regularly pay short positions whenever the rate percentage is positive. On the other hand, when the rate falls towards the negative side of the chart, we see that short positions regularly pay out long positions.

March 2020, Summer 2021, June 2022, and November 2022 will see events that marked BTC cycle lows.

In second place on shorting, ETH may have shorted further during the Merge event due to the contagious “buy the rumor, sell the news” mentality at the time.

In recent history through September there has been a plunge into negative funding rates. Despite the decline, the idea that short selling will drag prices to zero often reverts, forcing buyers to add fuel to the rally.

To see this reversal going forward, we expect it will take several more weeks of deep negative funding before the snapback event occurs.