About a week ago, bitcoin fell more than 10% in one day to around $60,000 before recovering to $70,000 in recent days. The question is: did the slide signal a “capitulation,” when holders panicked and sold at a loss, exhausting bearish pressure and setting the stage for a new bull run?
The futures market says no, suggesting there is room for another leg down, according to Amberdata derivatives director Greg Magadini.
“[The] The lack of ‘reaction’ in the futures basis does not make me confident that we will reach a true moment of CAPITULATION,” Magadini said in a market note on Monday.
Magadini refers to how futures typically trade relative to the spot price during downtrends and capitulation phases.
Futures 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 to bet on the direction of prices, buying contracts when they expect a rally or selling short when they anticipate a decline, without actually owning the asset itself.
The price difference, or basis, between the futures and spot markets reveals market sentiment and traders’ positioning. When futures trade at a significant premium to spot prices, it indicates bullish optimism among investors. On the contrary, a discount indicates bearish pressure.
Historically, bitcoin bear markets have tended to bottom out, with standard futures and perpetual futures trading at significant spot discounts on major exchanges. These massive discounts represented a capitulation and mark the end of the bear market.
However, last week futures were discounted for only a short time.
“Although the 90-day base fell on each leg down for BTC, these movements barely reached -100 bps. Today, the fixed base remains around 4% for BTC (in line with risk-free Treasury bond yields),” Magadini said.
Compare that to the end of the 2022 bear market, when 90-day futures were trading at a 9% discount as the bitcoin price bottomed below 20,000. So, if history is any guide, bitcoin could see another drop as futures traders capitulate, pushing prices to a steep discount relative to the spot price.
Bitcoin recently changed hands near $69,000, a 1% drop since midnight UTC, according to data from CoinDesk.
