Funding rates on perpetual swaps for Bitcoin and Ether have dipped into bearish territory, with open interest declining across major exchanges, signaling a potential shift in market sentiment. Data from KuCoin on July 17 showed BTC weighted funding at 0.0041% and ETH at 0.0030%, both below the 0.005% threshold often considered bearish. The moves come after a broader drop in open interest across perpetuals, term futures, and options, as reported by Coinbase Research in June 2025.
What funding rates reveal
Funding on perpetual swaps is a balancing mechanism that shows the cost of holding long or short positions. Positive funding means longs pay shorts, indicating bullish bias; negative funding means shorts pay longs, signaling bearish sentiment. In June, BTC funding stayed positive but softened into month-end, while ETH funding slipped into negative territory. By mid-July, both had weakened further, with KuCoin flagging the dip below the bearish threshold.
Open interest tells another story
Open interest (OI) counts active contracts. Rising OI suggests new money entering positions, while falling OI points to de-risking or position closing. Coinbase Research reported a broad step down in OI across perpetuals, term futures, and options in June. That decline continued into July, with OI flat or falling even as funding turned negative. That combination — soft or negative funding with rising OI — can create squeeze fuel if price moves against the prevailing short bias. But here OI is falling, not rising, which reduces the squeeze potential.
What the data says now
High funding combined with flat or declining OI often signals a shaky long setup that can unwind quickly. That was the pattern in June. Now, with funding negative and OI still declining, the market appears to be in a de-risking phase. Options OI can dominate market risk while funding remains subdued, potentially pinning price into expiries. Traders should watch whether OI stabilizes or starts rising again — that would change the risk profile.
Why context matters
The article recommends treating funding in percentiles over a rolling lookback and checking multiple venues for context. A single exchange's funding rate can be misleading if it's an outlier. KuCoin's data is one data point; Binance, Bybit, and others may show different levels. The broader picture from Coinbase Research shows a market that has been shedding exposure since June, with funding rates now confirming the bearish tilt.
What comes next depends on whether OI starts to build again. If funding stays negative and OI rises, that sets up a short squeeze. If OI keeps falling, the market may be positioning for a further decline. The next few weeks will show which path the market takes.
