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

Last Monday, Bitcoin experienced a sharp decline approaching the $60,000 mark, triggering market panic. However, according to research firm K33, this wave of sharp drops 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 has seen 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 has surged to the 95th percentile.

The company noted that momentum indicators have also fallen to rare levels. Continuous selling since January 20 has caused Bitcoin’s daily Relative Strength Index (RSI) to drop 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 building a phase bottom.

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

Lunde stated that price volatility has been 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 a situation has only occurred once before, during the FTX collapse.

Analyzing these extreme data points, Lunde suggested that such conditions often signal that prices are reaching phase extremes, typically followed by consolidation and possibly a retest of local lows.

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

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

In the Bitcoin spot ETF space, 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 Bitcoin.

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