BTC’s liquidation treadmill is back and futures still run the tape

Bitcoin’s recent price action had a familiar signature: leverage built on the bounce, funding turned supportive for longs, then the market ran the nearest pockets of fragility until forced selling took over.

BTC bouncing up and down in the $80,000 range is a result of futures positioning. Data showed roughly $794 million in Bitcoin long liquidations this week as it touched ~$87,800, with liquidation “hot zones” extending down toward $80,000.

Framing this around derivatives shows perpetual futures aren’t a side show anymore. Kaiko estimates BTC perps represented around 68% of Bitcoin trading volume in 2025, while derivatives overall made up more than 75% of crypto trading activity.

So, when the dominant venue for price discovery is a leveraged instrument designed for frequent repositioning, short-term price action no longer depends on marginal spot demand, but on how risk is warehoused, funded, and then forcibly unwound.

How perpetual futures create a liquidation treadmill

Perpetual futures track spot through a funding mechanism. When perp prices trade above the spot index, funding goes positive, and longs pay shorts; when perp prices trade below spot, funding flips negative and shorts pay longs. This “funding” is essentially a periodic payment between long and short traders based on the difference between the perpetual contract’s market price and the spot index, recalculated multiple times per day with an eight-hour cadence on its platform.

But funding does more than just keep prices aligned. The mechanism creates a steady incentive gradient that goes on to shape positioning. In a green market, traders chase the upward momentum with leverage. Perps make that easy, and the bill for holding that exposure shows up in funding.

When funding becomes persistently positive, it shows that long positioning is crowded enough that longs are paying to maintain it. That crowding isn’t inherently bearish or bullish, but it increases the market’s sensitivity to small downside moves because these leveraged positions have thin error bars.

Liquidation mechanics turn that sensitivity into a feedback loop. On Binance, liquidation begins when a trader’s collateral falls below the maintenance margin required to keep the position open. This is crucial: once maintenance is breached, the exchange takes control of the position and sells into the market to reduce risk. Those forced sells push price lower, which pressures the next layer of leveraged longs, which triggers more forced sells.

That loop is the treadmill. Traders re-enter on bounces because the prior liquidation flush creates a temporary sense of “cleaner” positioning and a better risk-reward ratio. But if the market remains choppy, the next price downtick finds a new shelf of leverage and repeats the cycle.

It also explains why intraday volatility can look pretty detached from macro narratives. A catalyst can start a move, but the shape of the move is frequently determined by bina.

Academic work on crypto perps found that perpetual markets are associated with changes in spot liquidity patterns and increased trading intensity around funding settlement hours, essentially proving the theory that perp microstructure matters for short-term price formation. The practical translation is simple: when a large share of activity sits in perps, the market becomes reflexive.

The long liquidations we saw this week are a useful scale marker because it makes the move below $90,000 look like a leverage flush rather than a spot exodus.

There are no clean, single-print events in this kind of market. The treadmill produces a sequence: a sharp down leg, an orderly bounce, and then a second down leg that hunts deeper liquidity. The liquidation hot zones we see extending toward $80,000 show the way these hunts work. Liquidity tends to concentrate at levels where many positions would be forced out, and the market tends to seek those pools when order books thin.

Reading the tape: heatmaps, open interest, and what breaks the loop

The simplest way to visualize treadmill risk is to map where forced flows likely sit.

Liquidation heatmaps are a tool that predicts potential large-scale liquidation points by analyzing trading data and leverage levels, highlighting zones where liquidations may cluster. They’re not prophecies, but they do reflect an important reality: liquidations aren’t randomly distributed across prices. They cluster because leverage tends to cluster, as many traders use similar levels, similar liquidation thresholds, and similar risk models.

A second necessary tool is open interest (the total value of outstanding futures contracts). Open interest is a positioning measure, not a directional signal by itself. The signal comes from combining it with price and funding. Rising price with rising open interest and rising funding often means leverage is building with the trend. Falling price with collapsing open interest suggests positions are being closed, often through liquidation.

This would mean that if the market truly had less leveraged exposure below a certain level, then a dip into that zone can shift from forced selling to discretionary buying more quickly. Traders should treat that as a hypothesis to test, not a conclusion to embrace. The test is the data: whether open interest drops meaningfully during the selloff, whether funding resets, and whether liquidation prints diminish after the flush.

So what breaks the treadmill?

There are only a few durable circuit breakers. A sustained leverage reduction shows up as lower open interest, less extreme funding, and smaller bursts of liquidations. A deep spot bid is slower and less reflexive than perp positioning and can absorb forced flow. A change in the volatility regime changes the incentive to run high leverage by compressing or expanding the opportunity set. When we distinguish between derivatives-driven intraday action and spot’s influence over longer horizons, we can capture the basic hierarchy here: perps can steer the route, and then spot tends to decide whether a level ultimately holds.

Funding, open interest, and liquidation intensity are the three variables that keep the treadmill turning, and they usually move in a recognizable sequence. Funding is the measure of how crowded a trade has become because it’s the price paid to maintain exposure when perpetuals drift from their spot reference.

Open interest adds the second layer of context because it separates a simple dip from an actual reduction of risk. The definition of open interest as outstanding contracts is straightforward, but the interpretation depends on the interaction with price and funding. A decline that coincides with a meaningful drop in OI and a reset in funding indicates leverage is being removed. When price falls while open interest holds up and funding remains supportive for longs, fragility often persists beneath the surface. Liquidation prints then become the practical confirmation of how much forced selling is active, and this week’s $794 million in long liquidations provides a solid benchmark for what a flush looks like at this stage of the cycle.

Heatmaps fit into that framework as a way to visualize where stress is likely to concentrate. Liquidations pile up where positioning piles up. Data showing liquidation “hot zones” extending down toward $80,000, with thinner leveraged exposure below, becomes most useful when it’s checked against those same positioning signals, since thinning exposure only matters if leverage actually clears rather than quickly reappearing on the next bounce.

A final layer comes from separating offshore perpetual activity from regulated futures markets. When perp-driven reflexivity dominates, the path tends to be jagged and liquidation-shaped; when spot demand begins to absorb forced selling, the market’s character changes, and the treadmill loses traction.