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Derivatives specialist suggests that a genuine capitulation in Bitcoin has not yet occurred.
Analyst notes that Bitcoin’s futures market does not indicate panic capitulation similar to late 2022.
BTC capitulation is still likely overdue, analyst says. (ds_30/Pixabay)
Key points:
- Bitcoin experienced a brief decline to approximately $60,000 before recovering to nearly $69,000, yet derivatives data indicates that the market has not reached a genuine capitulation bottom.
- Bitcoin futures are currently trading at a slight premium of around 4% to spot prices, rather than the significant discounts generally seen at bear-market lows.
- At the conclusion of the 2022 bear market, 90-day bitcoin futures were priced at a 9% discount to spot.
About a week ago, bitcoin fell over 10% in a single day to around $60,000, then recovered to $70,000 in the following days. The question arises: did this decline signify “capitulation,” when holders sell in panic at a loss, alleviate bearish pressure, and prepare for a new bull market?
The futures market indicates otherwise, suggesting there may be potential for another decline, as per Greg Magadini, director of derivatives at Amberdata.
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"The absence of a ‘reaction’ in the futures basis does not instill confidence that we have reached a genuine CAPITULATION moment," Magadini stated in a market note on Monday.
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Magadini refers to how futures typically behave in relation to the spot price during bearish trends and capitulation events.
Futures are standardized derivative contracts allowing for the purchase or sale of an underlying asset, such as bitcoin, at a predetermined price on a future date. Traders utilize futures to speculate on price movements, acquiring contracts when they foresee a rise or shorting when they predict a drop, without actually holding the asset.
The difference in price, or basis, between futures and spot markets reflects market sentiment and trader positioning. When futures trade at a substantial premium over spot prices, it indicates bullish sentiment among investors. In contrast, a discount suggests bearish pressure.
Historically, bear markets for bitcoin have typically bottomed out, with standard futures and perpetual futures trading at significant discounts to spot on major exchanges. These substantial discounts signified capitulation and marked the final flush of the bear market.
However, last week, futures entered a discount only briefly.
"Even though the 90-day basis decreased with each leg down for BTC, these movements were minimal, barely reaching -100bps. Currently, the fixed basis remains around 4% for BTC (consistent with risk-free treasury yields)," Magadini noted.
In comparison, at the end of the 2022 bear market, 90-day futures were trading at a 9% discount as the bitcoin price reached below 20,000. Therefore, if historical trends are indicative, bitcoin may experience another decline where futures traders capitulate, driving prices into a significant discount relative to the spot price.
Bitcoin was recently traded at approximately $69,000, reflecting a 1% decrease since midnight UTC, based on CoinDesk data.
