Crypto derivatives funding rates have dropped to three-year lows, reaching levels last seen during the 2022 bear market. This shift was triggered by a series of major liquidation events that wiped out billions in leveraged positions across various exchanges. As a result, open interest in perpetual contracts decreased sharply, reflecting a broader reduction in speculative activity.

The drop in funding rates is especially notable for major altcoins like ETH, SOL, and XRP, which briefly saw negative rates as traders paid a premium to hold short positions, expecting further declines in spot prices. Interestingly, Bitcoin perpetual contracts maintained mostly positive funding rates, suggesting that BTC traders were less willing to bet against price recovery.

Despite spot prices rebounding from recent local lows and showing resilience even amid external pressures like a US government shutdown, options markets have continued to signal caution. Implied volatility has sunk to historic lows, and volatility skew remains biased toward puts, indicating lingering bearish sentiment.

The historically low funding rates could be interpreted in two ways: it might signal oversold conditions, creating a favorable ground for price rebounds, or it could reflect lingering uncertainty where traders are reluctant to establish new long positions. While the decline in bearish sentiment among leveraged traders often precedes renewed bullish momentum, the market remains cautious as options data and volatility metrics do not yet confirm a decisive trend reversal.

Overall, the current environment with depressed funding rates and subdued volatility points to a potentially attractive setup for bullish traders, but persistent caution in the derivatives market suggests that confirmation of a sustained rally may still be needed before new trends emerge.