Bitcoin Capitulation Signals Possible Local Bottom as Short-Term Holders Exit
Monday’s sharp decline in bitcoin prices is being seen as a classic example of a local market bottom, with key metrics pointing to capitulation. Short-term bitcoin holders exited the market at a loss, as falling prices prompted derivative traders to unwind positions, leading to a significant drop in open futures contracts on the Chicago Mercantile Exchange (CME).
According to Glassnode, short-term holders—defined as those with coins held for less than 155 days—moved over 21,000 BTC ($2.2 billion) to exchanges, marking the second-largest transfer this month. This coincided with a 4.7% drop in bitcoin’s price, the largest dip in two weeks, as the cryptocurrency fell below $98,000. This move suggests that investors who bought at near-record highs of around $108,000 earlier in the year were rattled by the rapid decline back into the five-digit range.
These short-term holders, often active traders or new entrants, are particularly sensitive to price swings and are quick to exit during downturns. The drop in BTC prices coincided with news of Chinese startup DeepSeek challenging U.S. dominance in AI and technology, further dampening sentiment.
Other market indicators also pointed to capitulation, which is often seen at local price bottoms. For instance, perpetual funding rates for BTC flipped negative, signaling increased demand for bearish bets. This is typically observed when bitcoin is nearing a price floor, as seen on Jan. 13 and Aug. 5, when BTC dipped below $90,000.
Capitulation was also evident on the CME, a key indicator of institutional activity, where open interest (OI) saw a historic drop of $2.4 billion (17,000 BTC), coinciding with a steep decline in chipmaker Nvidia (NVDA). This drop in open interest drove the basis lower, according to Glassnode data.
Additionally, U.S.-listed bitcoin exchange-traded funds (ETFs) experienced a massive outflow of $457.6 million, mirroring the outflows seen on Jan. 13, according to Farside data. This suggests that institutional investors are also pulling back amid the market’s volatility.
