I usually watch Estimated Leverage Ratio and Funding Rate together.

Right now, Estimated Leverage Ratio is still around 0.22, which tells me leverage across the market is still pretty high. A lot of traders are still positioned pretty aggressively.

At the same time, Funding Rate is pretty deeply negative, and the funding EMA is still moving further down in negative territory. That tells me shorts are still in control and still paying longs.

When funding is this negative while market-wide leverage stays high, I lean toward the idea that the market is getting a bit over-shorted. And if we get a positive catalyst from here — for example, something constructive out of the US-Iran talks — there’s a decent chance of a short squeeze that snaps price back up.

Written by Rei Researcher