Bitcoin has entered its sharpest deleveraging phase since 2023, according to CryptoQuant analyst Darkfost, after a substantial reduction in leveraged futures positions reshaped the derivatives market and helped set the stage for the cryptocurrency's recent rebound.

Deleveraging refers to the process by which leveraged traders reduce, or are forced out of, borrowed market exposure — typically through liquidations when prices move against their positions. In crypto derivatives markets, where traders can control large positions with relatively little collateral, such episodes can unfold rapidly and amplify price swings in both directions.

The effect was most visible on Binance, where Bitcoin open interest briefly dropped below its 180-day average. It currently stands at approximately $9.6 billion, compared with an average of $8.3 billion over the past 180 days, and accounts for about 37% of Bitcoin's total open interest.

The deleveraging followed one of the largest liquidation events in Bitcoin's history, which forced highly leveraged positions out of the market. Darkfost said traders now appear to be returning, contributing to renewed bullish momentum, but warned that a rapid buildup of leverage could eventually trigger another severe liquidation cycle.

Bitcoin experienced its sharpest deleveraging since 2023 After a cycle largely dominated by futures volumes, Bitcoin has just gone through its sharpest deleveraging phase since 2023. This showed up as a marked decline in Binance's Open Interest, which dropped below its… pic.twitter.com/KtSU6C6nWS — Darkfost (@Darkfost_Coc) September 7, 2026

Crowded Shorts Amplified the Market Move

The recent reset followed roughly six weeks of increasingly bearish positioning in Bitcoin perpetual futures. Open interest climbed through July while funding rates turned negative, signaling growing demand for short positions across major exchanges. Funding rates are periodic payments between long and short traders on perpetual contracts; negative rates indicate that shorts were paying longs, a sign that bearish positioning had become crowded.

That positioning left the market particularly vulnerable to a short squeeze. As Bitcoin moved higher, short positions began to be liquidated, with exchanges closing them through forced purchases. The resulting buying pressure pushed prices higher and triggered additional liquidations, producing a self-reinforcing move.

More than $3 billion in positions were liquidated across major exchanges during the episode, with short positions accounting for the vast majority. Bitcoin and Ethereum shorts represented the largest share of the forced unwinds, while several major altcoins were also affected. Large liquidation cascades of this kind have preceded market turning points in past cycles, though the scale and timing of each episode differ.

The episode highlights the risks of heavily one-sided derivatives positioning. Although the recent deleveraging has removed some excess leverage, Binance's still-elevated open interest indicates that speculative exposure remains significant — a dynamic traders often watch as an indicator of potential volatility ahead. Bitcoin was trading at approximately $79,575 at the time of writing, while the broader crypto market capitalization stood at $2.71 trillion.