Last week, Bitcoin experienced a thrilling “Big Rage” market, with a single-day drop of over 10%, nearly breaching the $60,000 level. Although it then rebounded strongly back to around $70,000, does this rapid sell-off constitute a so-called “capitulation sell-off”? In other words, are investors panic-selling and realizing losses, completely releasing selling pressure and paving the way for the next bull market?
However, from the perspective of the derivatives market, the answer is likely no. According to Amberdata derivatives director Greg Magadini, the signals from the futures market suggest that Bitcoin may still have further downside potential.
In his Monday market report, Greg Magadini pointed out that during this decline, the futures basis (the spread between futures and spot prices) reacted noticeably cold, without the sharp changes often seen in bear markets. He said:
“The futures basis hardly showed the ‘market reaction’ it should have, which makes me doubt that we have experienced a true capitulation moment.”
What he refers to is the typical change in the relationship between futures and spot prices during a bearish trend, especially in the market clearing phase.
Futures allow traders to buy or sell the underlying asset, such as Bitcoin, at a predetermined price at a specific future date. Investors can bet on price movements through futures—going long when bullish or short when expecting decline—without actually holding Bitcoin itself. As a result, the spread between futures and spot prices (the basis) often becomes an important indicator of market sentiment and positioning.
When futures prices are significantly higher than spot, it indicates a bullish market, with investors willing to pay a premium for future price increases; conversely, when futures fall below spot, showing a discount, it signals heavy selling pressure and market pessimism.
Looking at Bitcoin’s history, bear markets often bottom out when futures and perpetual contracts show a “large discount.” This extreme negative spread reflects a complete collapse of market confidence, with holders panic-selling (i.e., capitulating), marking the final washout phase of the bear market.
However, during last week’s intense volatility, the futures discount was only fleeting.
Greg Magadini noted that although the 90-day futures basis for Bitcoin did gradually decline with each dip, the fluctuation was almost never more than -100 basis points (bps), and no deep discount formed. Currently, Bitcoin’s fixed-term futures basis remains around 4%, nearly on par with risk-free US Treasury yields.
If we look back to the end of the 2022 bear market, when Bitcoin fell below $20,000, the 90-day futures once showed a discount as high as 9%, clearly reflecting extreme market pessimism and widespread deleveraging.
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