Short-term Bitcoin holders are selling at a loss, raising questions about whether this is capitulation or merely a reset of leverage.

Bitcoin’s decline below $65,000 and towards $60,000 resembled a stress test that the market had been avoiding. The movement was significant enough to necessitate a repositioning, and extensive enough to shift the dialogue away from explanations based on single catalysts.

Mainstream media even characterized the week as Bitcoin’s poorest weekly performance since late 2022, with the price momentarily testing the $60,000 range before bouncing back above $65,000.

The crucial inquiry here is not whether this constituted capitulation, but rather which signals typically associated with seller exhaustion were evident in this selloff, and which confirmations remain absent if one seeks an explanation that surpasses a mere rebound influenced by positioning.

Capitulation is an appealing term as it suggests finality, yet markets seldom comply. Instead, they provide a scoreboard: forced liquidations, heightened risk measures, flows that either stabilize or escalate, and on-chain activity that indicates whether recent buyers are selling at a loss in significant amounts.

Cross-asset risk-off set the stage for a high-beta crypto selloff

Begin with the cross-asset environment, as it clarifies why crypto behaved like a high-beta risk asset rather than a self-contained ecosystem.

In the days leading up to Feb. 5, equities were already adopting a risk-off stance. The Nasdaq 100 experienced a decline of approximately 4.6% over three sessions, while the S&P 500 fell about 2.6% during the same period.

Concurrently, the VIX surged by around 33%. These types of shifts tighten liquidity across markets and increase the cost of leverage precisely when speculative positions are most vulnerable.

Graph illustrating the CBOE S&P 500 Volatility Index (VIX) from Feb. 2 to Feb. 6, 2026 (Source: TradingView)

This context is significant as it indicates a familiar mechanism. When risk appetite declines broadly, a selloff in the crypto market tends to be less responsive to a single crypto headline and more to positioning established during calmer periods.

Bitcoin’s drop can be traced back to the unwinding of leveraged and speculative positions, along with weakness in other risk assets. This is the initial component in any genuine washout: the trade must be crowded enough, and liquidity must be thin enough, so that some sellers become forced sellers.

Deleveraging signals: liquidations, open interest, and funding cooldowns

The second component is evident in liquidation data, which serves as a thermometer for forced activity. Earlier in the week, the market witnessed over $3.3 billion in liquidations following a selloff in other risk assets.

Graph depicting crypto liquidations in February (Source: CoinGlass)

Even if one approaches any individual liquidation figure with caution, the overall pattern is significant. A washout that eliminates leverage tends to leave identifiable traces.

Open interest contracts, funding rates cool down, and liquidations cluster around the same timeframe that price experiences a sudden drop. These conditions can create a tradable low, even if they do not guarantee a lasting one.

ETF flows as the key bridge between TradFi sentiment and crypto demand

The third component is the behavior of ETF capital, which has emerged as one of the clearest connections between crypto and traditional risk sentiment.

Bitcoin ETFs experienced over $3 billion in withdrawals in January, a figure that helps clarify why weakness persisted rather than rebounding on dips.

From Jan. 20 to Feb. 5, ETFs recorded $3.5 billion in net outflows, even after accounting for the $561.8 million inflow on Feb. 2.

This pattern does not serve as a verdict on its own, but it elucidates the market’s dilemma. During a selloff, reliable dip buyers are desired. When the primary flow channel is net negative, rebounds tend to be weaker and more conditional.

ETF flows also assist in distinguishing between two types of capitulation that are often conflated.

The first is flow capitulation, where redemptions accelerate as investors reach pain thresholds or reduce exposure for risk management.

The second is holder capitulation, where substantial underlying selling overwhelms other demand sources and is reflected in realized loss measures.

In practice, one can occur without the other. Outflows can be steady without being frantic, while leveraged traders may be the ones being forced out.

Alternatively, there can be a genuine investor exodus where flows remain negative even after leverage has been cleared.

On-chain stress checks: short-term holder SOPR and supply in profit

This is where on-chain metrics become useful, provided they are applied judiciously.

One of the most interpretable stress indicators for short-term behavior is the short-term holder SOPR, which assesses whether coins moved by recent holders are being sold at a profit or at a loss.

CryptoQuant data indicated that the short-term holder SOPR dropped to approximately 0.93 on Feb. 5. A reading below 1.0 suggests that recent buyers are realizing losses, and a dip into the low 0.9s often indicates periods when weaker hands are being shaken out.

The 30-day moving average of SOPR was around 0.985, indicating that the spot reading was below its short-term trend. While this does not confirm a bottom, it does indicate that by Feb. 5, the selloff had progressed beyond mild profit-taking and into a phase where many recent entrants were exiting at a loss.

Graph showing Bitcoin’s short-term holder SOPR from Jan. 6 to Feb. 5, 2026 (Source: CryptoQuant)

A second on-chain perspective that aids in translating price into behavior is the proportion of supply in profit. Supply in profit was approximately 55.26% on Feb. 4 and fell to around 52.11% on Feb. 5.

A three-point shift in a single day is significant as it indicates that the drawdown was severe enough to push a new segment of the market from profit to loss.

Generally, washout phases are characterized by rapid transitions. A large group that had previously felt secure becomes underwater, and the question arises whether they can endure through volatility or if they will be forced out by time, leverage, or risk limits.

What confirmation is still missing for a durable washout

Collectively, these components illustrate what the move from Feb. 5 to Feb. 6 clearly accomplished.

It tightened the connection between crypto and the broader risk-off trend in equities. It initiated forced selling consistent with deleveraging.

It occurred against a backdrop of net-negative ETF flows that had already been draining marginal demand.

It pushed short-term holders further into realized-loss territory and reduced the share of profitable supply toward the low 50s.

If one was seeking evidence that the market experienced genuine distress, it is present.

What remains uncertain, and what transforms this into a valuable thought experiment rather than a neatly packaged narrative, is whether the market has demonstrated the type of confirmation that typically follows a lasting washout.

Seller exhaustion is a process, not a singular event. In clearer capitulation instances, one often observes a sharp spike in liquidations followed by a swift decline in liquidation volumes even if prices remain volatile.

One sees open interest stabilize after a steep contraction. Funding rates remain subdued while prices cease making new lows, indicating that sellers have completed their actions.

On the flow side, one wants to see ETF outflows decelerate, or at least stop accelerating, because ongoing redemptions can transform each rebound into a supply event.

This is why the movement back above $70,000 on Feb. 6 should be regarded as information, not a conclusion.

In environments where implied volatility has surged, and equities have endured a multi-day decline, rebounds can occur rapidly as positioning is adjusted, but they can also fade just as quickly if underlying demand has not returned.

A framework for the next phase: flows, forced selling, and risk conditions

The practical takeaway is not a price target. It is a framework for interpreting the next phase without imposing a narrative onto every movement.

If ETF flows remain significantly negative, it indicates that the market is still contending with a headwind that was absent in previous cycles.

If liquidation intensity diminishes and remains low while prices hold within a range, that signals the conclusion of the forced-selling phase.

If the short-term holder SOPR begins to rise back toward 1.0 while the supply in profit stabilizes, it suggests that recent buyers are no longer exiting hastily.

If equities regain stability and volatility decreases, crypto gains breathing room even without a crypto-specific catalyst.

Cross-asset data already illustrates how closely these regimes can align. By Feb. 5, the VIX had increased by about a third over three sessions, and the Nasdaq 100 had dropped more than 4.5% since Feb. 2.

Capitulation narratives are appealing because they promise a tidy conclusion, but the market seldom provides one.

What it does offer is a collection of observable stress signals, and this week presented several simultaneously: a sharp risk-off movement, a leverage flush, ongoing ETF outflow pressure, and on-chain evidence that recent buyers were selling at a loss.

Whether this becomes a pivotal moment depends on what transpires after the turmoil, when forced selling should diminish, and the market must demonstrate its ability to attract marginal demand once more.

This is the question worth monitoring, as it distinguishes a rebound from the beginning of a base.

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