3 Key Indicators Suggest Bitcoin Might Be Ready for a Short Squeeze

Bitcoin (BTC) is facing a volatile month in January. The cryptocurrency reached a nearly four-week high earlier this week but briefly fell below $90,000 yesterday. During these fluctuations, several key signals are indicating the potential for an upcoming short squeeze.

Key Takeaways

Bitcoin is currently volatile, experiencing fluctuations in January.
Key indicators suggest a potential short squeeze is on the horizon.
The negative funding rate, rising open interest, and high leverage ratio highlight current market pressures.
The outcome of a short squeeze will depend on broader market dynamics and investor sentiment.

Key Signals Indicating a Short Squeeze for Bitcoin

According to data from BeInCrypto Markets, Bitcoin started January strong, showing a series of green candles for the first five days. The price surged above $95,000 on Monday, a level not seen since early December, before taking a downward turn.

On January 8, Bitcoin dipped below $90,000, hitting a low of $89,253 on Binance. As of now, Bitcoin is trading at $91,078, marking a 0.157% increase from the previous day.

Looking forward, there are three significant signals suggesting that market conditions may be setting up for a possible short squeeze in Bitcoin's price. For reference, a short squeeze happens when prices rise against bearish positions. The use of leverage can intensify this scenario, as traders may face forced liquidations, requiring them to buy Bitcoin, which pushes prices even higher. This buying action can rapidly spread throughout the market.

1. Binance Bitcoin Funding Rate Signals Bearish Pressure

The first indicator arises from the Bitcoin funding rate on Binance. Analyst Burak Kesmeci discovered that this rate has turned negative on the daily chart for the first time since November 23, 2025.

This funding rate measures the cost of maintaining perpetual futures positions. When it is negative, it means that short positions are more prevalent, and short sellers are paying fees to long position holders to keep their positions open. The current funding rate is at -0.002, a notable drop compared to the -0.0002 observed during the previous negative period in November. This prior shift was followed by a rally where Bitcoin rose from $86,000 to $93,000. January’s more pronounced negative rate indicates heightened bearish sentiment among derivatives traders.

Kesmeci noted, “Funding is more deeply negative, while price remains under pressure. This combination increases the probability of a much stronger short squeeze. A sharp upside bounce in Bitcoin would not be surprising here.”

2. Rising Open Interest Suggests Short Exposure

Secondly, another analyst pointed out that while Bitcoin's price has been trending down, the Open Interest has been increasing. This situation is seen as a potential indicator of an incoming short squeeze. They stated, “This is a textbook sign of an incoming Short Squeeze!”

Open interest refers to the total number of active derivative contracts. When this number rises while prices are falling, it generally means that new positions are being opened, indicating that traders are increasingly betting on the price to go down. This can create an uneven risk landscape, leaving the market exposed to quick liquidations if there is a price rebound.

3. High Estimated Leverage Ratio Indicates Increased Risk

Lastly, Bitcoin's Estimated Leverage Ratio has reached a one-month high, based on metrics from CryptoQuant. This ratio measures the level of borrowed capital in traders’ positions. High leverage can magnify both potential profits and losses, meaning even minor price shifts can lead to widespread liquidations.

For instance, traders using 10x leverage could face liquidation if Bitcoin moves just 10% against them. The current ratio suggests that many market participants are increasing their risk by gambling on continued downward momentum. High leverage poses a significant risk if Bitcoin's price shifts unexpectedly.

With these three indicators aligning, Bitcoin could be at a heightened risk for a sharp upward move if cascading liquidations occur among over-leveraged short positions.

Nevertheless, whether a short squeeze actually happens will largely depend on broader market drivers, such as macroeconomic trends, demand in the spot market, and general investor sentiment. Without a clear bullish catalyst, bearish positions may continue to dominate, delaying or diminishing any potential squeeze.