Traders Keep Betting on Bitcoin, But Funding Rates Warn of Trouble Ahead

August trading data from Binance exposed a clear divergence between bullish futures sentiment and Bitcoin’s actual downward ￰0￱ gap highlights the growing risks of excessive optimism in leveraged ￰1￱ Imbalance Despite Bitcoin experiencing significant declines throughout the month, funding rates on Binance futures contracts consistently remained ￰2￱ found that the figure ranged between 0.005 and 0.008 on most ￰3￱ high levels indicate that traders maintained an aggressive preference for leveraged long positions, effectively paying a premium to bet on price recovery. However, this bullish bias was not accompanied by upward momentum in Bitcoin’s spot price, which raised concerns about whether sentiment is detached from market ￰4￱ possible outcomes emerge from this ￰5￱ first is excessive optimism, where traders interpret the recent dip as a temporary correction and continue to hold long positions despite accumulating losses and rising funding ￰6￱ second is a mounting liquidation risk, as highly leveraged longs remain exposed to forced sell-offs if prices continue to trend downward.

A sudden cascade of liquidations, commonly referred to as a long squeeze, could accelerate Bitcoin’s decline and inflict greater instability across the market. Binance’s dominance in global Bitcoin futures trading amplifies both optimism and ￰7￱ a result, “elevated” funding rates on the crypto exchange not only reflect trader sentiment but also shape broader price action by encouraging a one-sided ￰8￱ the market fails to validate this optimism with a rebound, the risk of cascading liquidations grows, which could create conditions for sharper ￰9￱ risks in the futures market align with on-chain evidence of cooling ￰10￱ Market Foundation Beyond Binance’s funding rates, Glassnode’s latest analysis points to a cooling in Bitcoin’s market structure, as on-chain demand shows clear signs of ￰11￱ active addresses and transaction fees declined, which reflected softer organic network usage, even as transfer volumes rose on volatility-driven ￰12￱ divergence suggests that while day-to-day activity has slowed, short-term speculative flows continue to influence the ￰13￱ flow indicators also ￰14￱ fact, Realized Cap inflows appear to be slowing and Hot Capital Share stalling near its higher range.

Meanwhile, the short-term to long-term holder (STH/LTH) supply ratio edged up, signaling modest short-term rotation but limited long-term ￰15￱ metrics weakened as well – the share of supply in profit fell, the Net Unrealized Profit/Loss (NUPL) metric retreated from euphoric territory, and Realized Profit/Loss moved closer to ￰16￱ concludes that market sentiment has transitioned from euphoria toward fragility, as evidenced by spot and derivatives momentum cooling, options showing hedging demand, and ETF flows reflecting institutional ￰17￱ coming weeks may depend on whether fresh liquidity steps in or consolidation deepens.