Defensive positions betting on a decline are rising quickly in the Bitcoin (BTC) market, with Bitcoin exposure held by leveraged short ETFs expanding to the second-highest level on record. Geopolitical risks and technical uncertainty are overlapping, and investors have entered a phase of aggressive caution, an analysis said.

Blockchain outlet The Block reported on April 1 that research and brokerage firm K33 said in a recent report that short positions in the Bitcoin market are increasing rapidly. It said total exposure held by leveraged short Bitcoin ETFs was estimated at about 9,012 BTC, up 22 percent in recent days to the second-highest level in the data.

Vetle Lunde (베틀 룬데), head of research at K33 and the report’s author, said such rapid growth in short exposure means positioning is concentrating in a specific direction. He said the market is in a state of “aggressive caution”. He said weak Bitcoin prices, tensions in the Middle East and risks related to quantum computing are weighing on investor sentiment.

K33 also raised the possibility that bearish positioning may be crowded. It cited the funding rate, often used in futures markets, staying negative for an extended period. Lunde said the 30-day average funding rate on an annualised basis has remained negative for 32 consecutive days, nearing levels seen during the bear market in November to December 2022.

A negative funding rate means demand for short positions is high, so long holders receive compensation. If this persists for a long period, it suggests downside bets have built up excessively, and volatility could increase as positions are unwound, an interpretation said. Lunde added that such an environment could align with a typical stage in which the market is forming a bottom.

In the short term, seasonal factors are also cited as a variable. K33 said a pattern has repeatedly been seen in which trading volume and volatility fall during the Easter holiday, coinciding with closures in traditional financial markets. It said the crypto market trades around the clock but is affected by reduced liquidity, particularly during European trading hours.

Past data show that since 2019, Bitcoin has posted trading volume below the annual average during the seven days around Easter each year, while volatility also tended to shrink compared with the average for the period. That raises the possibility that price moves may be limited or distorted as fewer participants remain active during the holiday.

The current situation, in which declining trading volume and expanding short positions are appearing at the same time, makes market interpretation more complex. In periods of thin liquidity, prices can move sharply even on small trades, while accumulated downside bets could trigger abrupt swings in the opposite direction during liquidations.