Over the past week, tensions in the Middle East have escalated as conflict between Iran, Israel, and the United States has intensified. Despite these developments, Bitcoin has remained surprisingly stable around $68,000. The price has not collapsed sharply as many market participants feared.
However, overall market sentiment still leans heavily bearish. Short positions dominate across derivatives exchanges. This positioning creates conditions that could trigger a major short squeeze in March 2026.
Negative Bitcoin Funding Rate Creates Potential Conditions for a Short Squeeze
Santiment, an on-chain data analytics platform, analyzed data showing a strongly negative funding rate across crypto exchanges. The data reflect a market dominated by short sellers.
Santiment attributes this sentiment primarily to geopolitical concerns and delays surrounding the Clarity Act.
Their chart shows that when Bitcoin traded between $63,000 and $73,000, the funding rate remained deeply negative for multiple days. This pattern indicates that short positions clearly dominate the market. In many cases, they significantly outweigh long positions due to fears of war and regulatory uncertainty.
However, Santiment emphasized that historical data suggests extremely negative funding rates often precede price reversals.
“Historically, extreme shorting increases the likelihood of cryptocurrencies bouncing due to potential short liquidations providing a boost whenever prices break through resistance levels,” Santiment explained.
Similarly, analyst RugaResearch cited data from CryptoQuant showing that the 30-day funding rate percentile is currently about 6%. This level marks the lowest reading since early 2023.
He explained that short positions are currently paying fees to long positions. Traders have done this almost every day for two consecutive weeks.
“The 30-day percentile ranks today’s funding rate against the last 30 days of readings. At 6%, almost every single day in the past month had higher funding than right now. The derivatives market is overwhelmingly positioned for more downside, and it has been for a while,” RugaResearch explained.
The chart shows that when the market becomes excessively short, sudden volatility often occurs rather than gradual corrections. As a result, the current environment creates ideal conditions for a short squeeze.
Signs of De-escalation in Geopolitical Conflict
While the observations above rely heavily on historical patterns, recent developments also suggest a price recovery is possible.
Recent statements from President Donald Trump have helped ease negative sentiment. In an interview with CBS News, he stated that the military campaign targeting Iran has progressed much faster than the originally expected four to five weeks.
“I think the war is very complete, pretty much,” the president said.
Trump also held a phone call with Russian President Vladimir Putin. The Kremlin confirmed that Putin proposed a plan to end the war quickly. These developments have reduced fears of a full-scale escalation and helped improve market sentiment during the first week of March.
The liquidation map from Coinglass shows that if Bitcoin rises above $75,000 this week, the cumulative potential liquidation volume of short positions could reach nearly $4 billion.
Why This Time Could Be Different
Yet signs of a quick resolution remain mixed. Iran named hardliner Mojtaba Khamenei as its new supreme leader on March 9. The move signals continuity rather than concession. The war has spread to Lebanon, and the Strait of Hormuz remains effectively closed. Brent crude briefly neared $120 per barrel.
This macro backdrop is hostile to the capital inflows that typically fuel a short squeeze. Allianz Research outlined three scenarios. A quick deal could settle oil near $70. A prolonged conflict could push it to $100. A tail-risk escalation could send Brent above $130. Sustained energy shocks raise stagflation risks and could delay expected rate cuts. Without fresh institutional buying, shorts can stay profitable longer than history suggests.
War-driven risk-off could also drain crypto liquidity directly. In past crises, forced selling in traditional markets spilled into digital assets. Investors liquidated crypto positions to cover margin calls elsewhere. If oil stays above $100, this cross-market contagion becomes more likely. A short squeeze needs buyers, not just overleveraged shorts.
