Digital assets have reclaimed a market value of $3 trillion for the first time since January following an impressive Bitcoin rally;
however, traders are also ramping up leveraged bets in perpetual futures, increasing the risk of sharp price swings, Bloomberg reports.
The market has gained over $740 billion in value since the US Treasury announced plans last month to increase long-term bond buybacks, according to CoinGecko. Leverage is rising alongside prices. Open interest in perpetual futures for tokens has climbed to nearly $160 billion—a high not seen since late October of last year—Coinglass data shows.
On Monday, more than $920 million in bearish bets were liquidated amid the price surge. Continued short-covering could trigger a squeeze, as traders rush to buy back assets to close out losing trades, creating further upward pressure on prices. Yet, open interest has continued to rise, indicating that new leveraged positions are entering the market even as short positions are being forced out.
"A squeeze usually wipes out open interest," said Rachel Lucas, an analyst at BTC Markets. "This one didn't, meaning positions are being immediately replaced. Traders are chasing the move rather than reducing risk. That is why the next 5% move in either direction will happen faster than expected."
Bitcoin pulled back to $85,100 on Tuesday after surging nearly 8% during the US trading session to reach $87,381—its highest level since January.
The current combination of rising open interest (the number of outstanding contracts) and the closing of short positions suggests that the rally is not merely a case of traders unwinding bearish bets and reducing leverage. These are being replaced by fresh positions, meaning that a price move in either direction could trigger a wave of short liquidations or the closing of leveraged long positions.
"The main thing to watch is leverage outpacing spot," said Caleb Lian, a senior sales trader at QCP Group. "A rise in open interest for perpetual contracts is healthy when spot follows suit. When it grows faster, the market becomes reflexive: a modest reversal triggers long liquidations, which push prices down and force further deleveraging."
It was precisely this mechanism that drove the move above $83,000 by squeezing out short positions, Lian added.
"Building leverage on the long side against thin spot liquidity creates the same conditions in reverse."
This latest movement also coincides with growing institutional interest in Bitcoin and select smaller tokens. U.S. spot Bitcoin ETFs turned positive late last week, attracting $593 million in inflows on Thursday and Friday.
Altcoins joined the rally: privacy-focused Zcash surged, while HYPE—the native token of the Hyperliquid blockchain—soared to an all-time high.
For now, traders remain unconvinced about the rally's sustainability.
"Short squeezes create price action, not long-term holders," said Lucas. "I’ll be watching to see if spot demand replaces the forced position closures over the coming week."