Bitcoin Capitulation on Monday Suggests Potential Market Bottom as Short-Term Holders Sell Off
Monday’s notable drop in bitcoin prices has raised the possibility of a local market bottom, as multiple indicators point to capitulation. Short-term bitcoin holders, identified by Glassnode as those holding assets for fewer than 155 days, moved to exit the market at a loss. The fall in prices also prompted derivative traders to cut their positions, causing a substantial reduction in open futures contracts on the Chicago Mercantile Exchange (CME).
These short-term holders transferred over 21,000 BTC ($2.2 billion) to exchanges, making it the second-largest transfer of the month. The largest cryptocurrency saw a 4.7% drop, its biggest slide in two weeks, falling below $98,000. This likely reflects the unease of investors who had purchased bitcoin when its price was close to record highs of $108,000 at the start of the year, causing them to react quickly to the price retreat.
These holders, often new entrants or active traders, are particularly sensitive to price fluctuations and tend to sell during declines. The latest drop in bitcoin coincided with concerns about Chinese startup DeepSeek, which raised questions about the U.S.’s position in AI and technology, further intensifying market uncertainty.
Capitulation signals were visible across the market. The perpetual funding rates for BTC turned negative, a typical sign that more traders were taking bearish positions, often seen when bitcoin approaches a price floor. This behavior mirrors earlier instances, such as January 13 and August 5, when bitcoin hit notable lows.
The CME, often considered a key indicator of institutional market behavior, witnessed a record drop in bitcoin open interest (OI), with notional OI falling by $2.4 billion (17,000 BTC). This significant reduction in OI contributed to a lower basis, according to Glassnode’s analysis.
Additionally, U.S.-listed bitcoin exchange-traded funds (ETFs) saw a large outflow of $457.6 million, echoing the outflows that occurred on January 13. This points to a broader pullback from institutional investors amid rising market volatility and uncertainty.
