Bitcoin is showing a short-term pullback, but the derivatives market is raising the possibility of further gains. An analysis says excessively built-up short positions could become a catalyst for a sharp jump.

On April 17, CoinDesk reported that bitcoin was trading around $74,700 and was down 0.4 percent over 24 hours, but up 3.5 percent for the week. On the surface, it is a pause in an upward trend.

Market participants are focusing on changes in derivatives indicators rather than price. The perpetual futures funding rate for bitcoin has fallen to its lowest level since 2023, entering deep negative territory.

The funding rate refers to payments regularly exchanged between traders in perpetual futures contracts to align the contract price with the spot price. A negative funding rate means short selling positions have built up excessively. It is interpreted as a signal that raises the likelihood of a short squeeze, in which short positions are liquidated in a chain reaction when prices rise.

Daniel Reis Faria (다니엘 레이스 파리아), chief executive of ZeroStack, said a funding rate this negative means the market is overly tilted to the downside. He said that if bitcoin continues to rise from this state, large-scale liquidations could occur and accelerate the pace of gains. He also suggested bitcoin could reach $125,000 within the next 30 to 60 days if short positions are liquidated.

The macro environment is also stimulating appetite for risk assets. Global stocks extended gains after U.S. President Donald Trump mentioned the possibility of a permanent ceasefire with Iran. The MSCI World Index and the S&P 500 hit record highs, while Brent crude fell.

Some also point out that the market may be overly pricing in easing geopolitical risks. Iran has not confirmed that it will actually abandon its nuclear programme or open the Strait of Hormuz, and regional tensions have not been fully resolved.

On-chain indicators are sending a different signal. On-chain analyst CryptoVizArt said that based on the True Market Mean indicator, the average entry price of current active investors is higher than the market price. That means some investors are still sitting on unrealised losses and could add selling pressure on rebounds.

The True Market Mean indicator estimates the average acquisition price of active investors, excluding coins that are lost or have not moved for a long time. Since 2016, periods in which bitcoin has meaningfully traded below the indicator have overlapped with the 2018 to 2019 bear market and the 2022 to 2023 correction after the FTX and Luna collapses.

The market is ultimately facing conflicting signals. In the short term, negative funding rates could trigger a short squeeze and spur a sharp surge. Investors sitting on losses could also sell into rebounds, limiting gains.

A key variable ahead is geopolitical events. Whether ceasefire talks between the United States and Iran actually continue is seen as a key factor that will determine near-term direction for risk assets overall and bitcoin.

Major altcoins were relatively strong. Ethereum fell over 24 hours but rose 6 percent for the week, while XRP gained 6.4 percent and Solana rose 2.7 percent. Binance Coin and Dogecoin also posted gains.