Funding rates across crypto derivatives markets plummeted to their lowest levels since the depths of the 2022 bear market, as short sellers mounted up over the weekend.

The dramatic fall in funding rates was reported by onchain analytics provider Glassnode on Sunday.

“This marks one of the most severe leverage resets in crypto history,” the analysts noted, stating it was a clear sign of “how aggressively speculative excess has been flushed from the system.”

Funding rates are periodic payments between traders in the most popular crypto derivatives — perpetual futures contracts. They are designed to keep the perpetual contract price anchored to the spot price.

When funding rates are extremely low or negative, there are more short positions than longs, and it is often a signal that derivatives speculators expect prices to fall, so people are willing to pay to hold short positions.

Too many shorts could launch prices upward

However, extremely low funding rates, such as the current situation, can actually be bullish because the market may be oversold with too many shorts creating the potential for a “short squeeze” if prices start rising.

Crypto markets are already recovering 

This appears to be the current situation, as the CoinGlass long/short ratio has turned bullish. Around 54% of sentiment is bullish or very bullish, while 16% remains neutral and 29% is still bearish. 

CoinGlass also reports that long accounts currently comprise 60%, with 40% still going short. 

However, funding rates remain slightly negative at the moment across Bitcoin (BTC) and Ether (ETH) perpetual swaps, according to CoinGlass. 

Related: ETH, BNB, DOGE lead as crypto market cap rebounds to $4T

Spot markets have recovered strongly, with BTC up over 5% since its slump to below $110,000 on Sunday, while Ether has regained 12% since it tanked below $3,800. 

Largest liquidation in crypto history

The largest leverage flush in crypto history, in what some are calling “crypto black Friday,” saw almost a trillion dollars in total market capitalization wick down by 25% in a matter of hours, according to TradingView.

Whales loaded up on short positions in anticipation of a drop when US President Donald Trump announced his latest round of tariffs on China on Friday. When the cascade came, 1.6 million traders with leveraged long positions were liquidated.

Volume was so strong that it led to the first-ever $20,000 red candlestick in Bitcoin, a $380 billion drop in its market cap, “before a V-shaped bottom as shorts were closed,” reported the Kobeissi Letter on Sunday. 

Not only was this the largest liquidation ever, it was nine times the previous record, it added. Leverage flushes are a common occurrence in markets and help reset them following excessive speculative buildup in crypto derivatives. 

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