Short squeeze alert for 2 cryptocurrencies with negative funding rates

Following the devastating cryptocurrency market crash last week, there is a bearish sentiment around most cryptocurrencies, leading to speculative imbalances and liquidity. Two cryptocurrencies in particular are currently dominated by short sellers, creating an interesting dynamic that could favor a short squeeze.

For this analysis, Finbold used data from Coin jar on July 7. We looked at the funding rate of the most traded cryptocurrencies on the derivatives market, sorted by the highest open interest (OI).

Basically, a negative funding rate occurs when there are more open positions in short positions than in long positions. Therefore, the crypto exchange algorithm causes short sellers to pay an effective annual interest rate to long position traders, which promotes equalization.

The opposite is also the case with positive financing rates. These additional costs for holding a position affect the liquidation prices and accordingly favor long or short squeezes.

Negative funding rates at Toncoin (TON)

First, Toncoin (TON) has a funding rate of -26.65% as of July 7, indicating short dominance. Open Network’s native token has been heavily criticized in relation to the crypto wallet Telegram, which created downward pressure.

Furthermore, TON saw a massive surge in 2024, and the recent market crash led to a long-overdue correction in its price, favoring sell-offs and further declines. The network has positioned itself as one of the leading competitors to Solana (SOL), capitalizing on Telegram’s popularity to attract investors.

Despite the negative funding rate, TON’s derivatives volume has dropped 43% in the last 24 hours. Therefore, it is possible that the current open interest of $295.34 million is not enough to trigger a short squeeze. This is because the falling volume suggests that short sellers are closing their now expensive positions with an annual cost of 26.65%.

Notcoin (NOT) Short Squeeze Alert

In contrast, Notcoin (NOT) has risen to become the 11th largest open interest in the market with a 526% increase in volume. The $1.64 billion capitalized token has an open interest of $219.59 million with an OI/MCap ratio of 0.1338.

This especially increases the likelihood of a short squeeze considering a notable negative funding rate of 57.53%. NOT is a play-to-earn token integrated into the TON blockchain and Telegram wallet.

However, it is worth noting that such increased open interest and increasing volume to open short positions is usually bearish. This market movement suggests that investors and traders are betting on lower prices for TON and especially NOT.

If this sentiment is fueled by fundamental factors and negative news, a short squeeze may never occur when prices fall. These heavily shorted coins need some positive news and events to trigger a rally and thus a short squeeze.

Disclaimer: The content of this website does not constitute investment advice. Investments are speculative. When you invest, your capital is at risk.