About a week ago, bitcoin fell more than 10% in a day to around $60,000 before rising to $70,000 in recent days. The question is, did the slide mark “capitulation” as holders panic-sold at losses, fending off bearish pressure and setting the stage for another bull run?
The futures market is saying no, suggesting there is room for another leg lower, according to Amberdata’s director of derivatives, Greg Magadini.
“[The] lack of ‘reaction’ in the futures fundamental does not make me confident that we have hit a true CAPITULATION moment,” Magadini said in a market note on Monday.
Magadini refers to how futures typically trade relative to the spot price during bearish trends and capitulation phases.
Futures are standardized derivative contracts to buy or sell an underlying asset, such as bitcoin, at a set price at a future date. Traders use futures to bet on price direction, buying contracts when they expect a rally or shorting when they expect a decline, without actually owning the asset itself.
The price differential or basis between futures and spot markets reveals market sentiment and trader positioning. When futures trade at a significant premium to spot prices, it signals bullish optimism among investors. Conversely, a discount indicates bearish pressure
Historically, bitcoin bear markets have tended to bottom out, with default futures and perpetual futures trading at significant discounts to spot on major exchanges. These massive discounts represented capitulation and mark the final flush of the bear market.
Last week, however, futures slipped into a discount only for a short time.
“Although the 90-day basis dipped lower on each leg for BTC, these moves barely swung -100bps. Today, the firm basis remains around 4% for BTC (in line with risk-free Treasuries),” Magadini said.
Compare that to the end of the bear market in 2022, when 90-day futures traded at a 9% discount as the bitcoin price capped below 20,000. So if history is any guide, bitcoin could see another leg lower, with futures traders capitulating, pushing prices to a steep discount to the spot price.
Bitcoin recently changed hands near $69,000, down 1% since midnight UTC, according to CoinDesk data.
