About a week ago, Bitcoin fell more than 10% in one day to around $60,000 before rebounding to $70,000 in recent days. The question is: Did the slide mark a “capitulation,” when holders sold at a loss in panic, exhausting the bearish pressure and setting the stage for another bull run?
The futures market says no, suggesting further decline is possible, according to Amberdata derivatives director Greg Magadini.
“[The] “The lack of ‘reaction’ based on futures contracts does not give me confidence that we have reached a true moment of CAPITULATION,” Magadini said in a market note Monday.
Magadini refers to how futures typically trade relative to the spot price during downtrends and capitulation phases.
Futures contracts are standardized derivative contracts to buy or sell an underlying asset, such as bitcoin, at a fixed price at a future date. Traders use futures contracts to bet on the direction of prices, buying contracts when they expect a rally or shorting them when they anticipate a decline, without actually owning the asset itself.
The price difference, or basis, between futures and spot markets reveals market sentiment and traders’ positioning. When futures contracts trade at a significant premium to spot prices, it signals bullish optimism from investors. Conversely, a discount indicates bearish pressure.
Historically, bitcoin bear markets have tended to bottom out, with standard futures and perpetual futures trading at deep discounts to be spotted on major exchanges. These massive discounts represented capitulation and marked the final wave of the bear market.
Last week, however, futures only saw declines for a short period of time.
“Although the 90-day basis has fallen with each decline for BTC, these moves have barely reached -100 basis points. Today, the fixed basis remains around 4% for BTC (consistent with risk-free Treasury yields),” Magadini said.
Compare this with the end of the 2022 bear market, when 90-day futures were trading at a 9% discount as the price of bitcoin bottomed below 20,000. So, if history is any guide, Bitcoin could see another decline as futures traders capitulate, pushing prices toward a sharp discount to the spot price.
Bitcoin recently changed hands at nearly $69,000, down 1% since midnight UTC, according to CoinDesk data.
