Is the Bitcoin bottom in? BTC derivatives point to limited price downside

The cryptocurrency market experienced a surprise 17% correction on Feb. 2, bringing the total market capitalization (excluding stablecoins) to $2.61 trillion, the lowest level in nearly eight weeks. Bitcoin (BTC) was less affected than altcoins, while Ether (ETH) dropped 35% over two days to $2,133. 

Despite the relatively quick Bitcoin price bounce to $99,000, traders question whether the market has reached its bottom, but in reality, the ongoing external macroeconomic pressures remain the primary risk factor.

Not all cryptocurrencies were equally impacted; Bitcoin, BNB (BNB), Solana (SOL), and XRP (XRP) did not fall below their 90-day lows. Meanwhile, Ether’s intraday low on Feb. 3 was $2,110, marking the first time since December 2023 that it closed below such a level. However, it would be incorrect to attribute the correction solely to Ether, which seems to be more related to broader macroeconomic factors.

The last time the cryptocurrency market capitalization dropped below $2.6 trillion was in November 2024, when yields on US Treasury bonds were rising, signaling that investors were moving out of fixed-income positions. This time, the situation is reversed, with investors adopting a more cautious approach.

The 24-hour nature of cryptocurrency markets partially explains why sentiment shifts have a more immediate impact, whereas traditional markets were closed over the weekend. On Feb. 1, US President Donald Trump followed through on a previous threat, increasing tariffs on Chinese goods by 10%.

In a Feb. 3 report, economists at Goldman Sachs stated that these changes would reduce China’s real GDP growth in 2025 to 4.5%. In retaliation, China’s Commerce Ministry claimed on Feb. 2 at the World Trade Organization that Trump’s decision was a “serious violation of international trade rules,” according to CNBC.

Bitcoin derivatives performed well despite market volatility and risk aversion

Bitcoin derivatives held up surprisingly well, even as the S&P 500 index dropped 1.8% and the US Dollar Index (DXY) approached its highest levels since November 2022. Essentially, rising debt and foreign exchange rates signal risk aversion, which is detrimental to riskier assets such as cryptocurrencies.

To evaluate whether the $2 billion in liquidations within the cryptocurrency futures markets has led traders to adopt a bearish stance, it’s important to first analyze the demand for leverage in perpetual futures (inverse swaps), the preferred instrument for retail traders, as its price closely tracks the spot market.

The Bitcoin funding rate turned negative on Feb. 3, indicating reduced demand for long leverage positions. However, the impact was minimal, as the rate before the Bitcoin price drop to $91,341 was below 1% per month, reflecting a balanced position between long (buyers) and short (sellers) positions.

More importantly, Bitcoin open interest, which measures the total outstanding contracts in BTC futures, remained stable at BTC 630,000 on Feb. 3, showing a slight 1% decline from the previous day. This resilience was also seen in Bitcoin’s monthly futures contracts, a market largely driven by whales and professional market makers.

Related: Crypto market liquidations likely reached $10B — Bybit CEO

The annualized futures premium for Bitcoin fell from 11% to 9%, a minor shift and still close to the 10% bullish threshold. This suggests that professional traders were not overly concerned about the 16.5% decline from Bitcoin’s all-time high of $109,354 on Jan. 20.

The recent dip in Bitcoin’s price below $94,000 lasted less than four hours, likely driven by cautious investor sentiment related to global economic conditions and the strengthening US dollar. Bitcoin derivatives suggest that the short-term price bottom has been reached but also indicate concerns about the stock market performance, which may limit Bitcoin’s potential upside beyond $100,000.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.