The market shows signs of a "capitulation sell-off"! K33 Research: Bitcoin's "phase bottom" may have already formed

Bitcoin briefly plummeted last Monday, approaching the $60,000 mark and triggering market panic. However, according to research firm K33, this sharp decline likely signals that a “phase bottom” has been established. K33 believes that whether in spot, ETF, or derivatives markets, signs of a “capitulation sell-off” are emerging.

K33 Research Director Vetle Lunde, in a report released on Tuesday, cited a series of “extreme abnormal data” to support this view. He pointed out that the market experienced the first collapse in funding rates since the U.S. banking crisis in March 2023, as well as options skew levels only seen during the worst part of the 2022 bear market. Additionally, trading volume surged to the 95th percentile.

The firm noted that momentum indicators also dropped to rare levels. Continuous selling since January 20 led to Bitcoin’s daily Relative Strength Index (RSI) falling to 15.9, the sixth-lowest oversold level since 2015, only surpassed by March 2020 and November 2018. RSI is mainly used to measure the speed and magnitude of price changes, fluctuating between 0 and 100.

Lunde pointed out that during the previous two instances when RSI was this low, it corresponded to cyclical bottoms, further reinforcing the idea that the recent decline may be forming a phase bottom.

Market sentiment has also collapsed. The Crypto Fear & Greed Index briefly dropped to 6, the second-lowest level in history, nearly reaching a state of full panic, indicating that investor pessimism about Bitcoin falling to $60,000 has reached an extreme.

Lunde stated that price volatility was accompanied by “unusually active trading.” He wrote that on February 6, Bitcoin spot trading volume reached $32 billion within two days, setting a new record, with trading volumes on February 5 and 6 reaching the 95th percentile. Such activity has only occurred once before, during the FTX collapse.

Analyzing these extreme data points, Lunde said they typically signal that prices are hitting phase extremes, often leading to consolidation and possibly retesting local lows.

Derivatives data also reflect extreme market panic. According to K33, on February 6, the daily funding rate for Bitcoin perpetual contracts plunged to -15.46%, the lowest since March 2023; the 7-day average funding rate also fell to -3.5%.

Furthermore, options market skewness entered an “extreme defensive zone,” with hedging sentiment comparable to during the LUNA collapse, Three Arrows Capital (3AC) liquidation, and FTX bankruptcy periods.

In terms of Bitcoin spot ETFs, BlackRock’s IBIT hit a record daily trading volume on February 5, surpassing $10 billion and trading 284.4 million shares. However, IBIT also recorded its fifth-largest net outflow since listing. Although funds flowed back in over the following days, since last Tuesday, IBIT has had a net outflow of 13,670 Bitcoins.

Combining extreme data on volatility, trading volume, returns, skewness, and ETF capital flows, Lunde stated that the probability of $60,000 serving as a phase bottom is very high.