Bitcoin Deleveraging Signal Emerges: What Does a 31% Drop in Derivatives Open Interest Mean

The Deleveraging Wave Is Coming, Market “Clearing the Battlefield”

According to the latest data from on-chain analytics firm CryptoQuant, the Bitcoin derivatives market is undergoing a clear deleveraging process. Over the past three months since October 2025, the open interest has decreased by approximately 31%. Behind this seemingly cold numerical change lies a significant shift in market structure. During the same period, Bitcoin spot prices did not follow the decline; instead, they recorded nearly a 10% increase in early 2026. This combination of “rising prices and decreasing leverage” is seen by some analysts as a potential early sign of a new bull market revival.

What Is Actually Happening During Deleveraging

The Market Reality Behind the Data

Open interest is a key indicator of leverage levels in the derivatives market. Simply put, the higher the number, the more high-risk positions are present; a decline indicates these high-risk positions are being liquidated.

According to related reports, Bitcoin spot ETFs, after experiencing continuous net outflows, have recently shifted to net inflows, indicating increasing actual spot buying power. From another perspective, the deleveraging process involves:

• Forced or voluntary stop-losses on highly leveraged longs
• Liquidation of short positions
• Gradual release of speculative positions accumulated in the market
• High-risk capital exiting, while stable capital enters

The benefits of this process are obvious: it reduces the probability of extreme volatility and chain liquidation events during sharp market moves.

What Does History Say?

Research by crypto analyst Darkfost points out that historically, significant declines in open interest often correspond to important bottoming phases. Such structural adjustments can “reset the market,” laying a foundation for healthier subsequent upward trends.

This observation has a logical basis: once leverage is cleaned out, the market is less likely to be directly pierced by sudden negative shocks because there are fewer forced liquidations. From this perspective, deleveraging is indeed like “clearing the battlefield” for the next wave of market movement.

Key Changes in Current Market Structure

Spot Demand Is Becoming the Dominant Force

A crucial detail mentioned in recent news is that prices are rising while leverage is decreasing. What does this imply?

Traditional speculative rallies are often accompanied by increasing leverage—traders borrow money to chase gains, pushing prices higher. But now, prices are rising without leverage support, indicating that the upward momentum is driven by genuine spot demand rather than excessive leveraged funds.

From the perspective of market participants, this change means:

• Institutional investors are increasing their spot holdings (Harvard’s Bitcoin allocation is an example)
• Retail investors are participating more rationally
• The sustainability of the rally is relatively stronger

This type of rally driven by spot demand is considered more durable than one driven solely by leverage.

Market Sentiment Still Needs Observation

However, it’s honest to say that current market sentiment remains cautious. According to derivatives research data, some analysts believe that the current trend is more like a passive correction of the previous rebound rather than a confirmed structural bull market.

This view also has its rationale. After all, deleveraging provides a more solid foundation for the market, but confirming a true bull market still depends on further capital inflows and macroeconomic environment improvements.

Macro Environment Constraints

Changing Expectations for Federal Reserve Policy

Latest reports indicate that JPMorgan has reversed its forecast of a Fed rate cut in 2026, now expecting the Fed to hike rates in Q3 2027. This suggests that short-term interest rates are likely to remain high, putting pressure on risk assets including Bitcoin.

Traders now believe there is a 95% chance that the Fed will hold rates steady in January, which in some ways limits Bitcoin’s appeal as a “hedge against currency devaluation”—at least in the short term.

Gold’s Strong Performance

Meanwhile, gold prices have hit record highs, further indicating increased risk-averse demand. In this environment, Bitcoin is also viewed as a hedge, but its performance has not outpaced gold, reflecting that market risk appetite for crypto assets still exists.

Summary: Deleveraging Is Necessary but Not Sufficient

Deleveraging is indeed a positive signal, indicating that the market is undergoing necessary structural adjustments, clearing out some unhealthy speculative positions. This creates a more solid foundation for subsequent gains.

However, it is not enough to confirm that a bull market has begun. The real confirmation requires:

• Improvement in macroeconomic conditions (or at least a policy expectation shift)
• Continued inflow of spot funds
• Market sentiment shifting from cautious to optimistic

Currently, Bitcoin’s performance can be described as “having a foundation but lacking consensus.” Deleveraging has completed half the work—risk has been cleared—but the second half—attracting new capital—is still underway. The key moving forward is to observe whether this spot demand can be sustained and whether macro conditions will turn favorable.