Bitcoin’s 22% fall: How futures market data hints at recovery

• Bitcoin has fallen 22.5% from its peak, with current minor gains insufficient for recovery.
• Recent futures market data suggests a bearish sentiment, potentially setting the stage for future bullish trends.

Over the past weeks, Bitcoin [BTC]

has recorded a significant plunge in its value, dropping by 22.5% from its all-time high above $73,000 in March.

Although the asset has struggled to make a rebound this week following the ‘Red Monday’ it has not been enough. Currently, BTC is up by 0.6% in the past 24 hours however, the asset is still down by 11% on the 7-day chart.

Futures market sentiment 

ShayanBTC, an analyst from CryptoQuant, shared insights on the  Quicktake platform highlighting the impact of perpetual markets and long-squeeze events on Bitcoin’s price. 

According to Shayan, the key driver behind Bitcoin’s recent price drop could be attributed to increased selling activity within these markets. This was further evidenced by the sharp drop in funding rates, a vital indicator of market sentiment. 

Funding rates have recently turned negative, signaling a bearish sentiment dominated by short sellers. This shift suggests that the futures market is cooling down, potentially setting the stage for a more stable bullish trend in the future.

Shayan particularly noted:

“The funding rates have now turned negative, reflecting an overall bearish sentiment and the dominance of short sellers. However, this could also be seen as a positive sign, as it suggests the futures market is no longer overheated. This scenario could create conditions for a more sustainable bullish trend in the coming months, provided there are no drastic changes.”

Bitcoin recovery on the horizon?

Despite the gloomy short-term outlook, there are indicators that suggest a potential path to recovery. 

Data from IntoTheBlock shows an increase in large Bitcoin transactions (exceeding $100,000), which spiked from below 16,000 to over 23,000 transactions on 5th August, before settling at around 16,560 today.

This fluctuation in whale activity could signify renewed interest from large investors, possibly hinting at a strategic accumulation of assets at lower prices.

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Additionally, Bitcoin’s open interest has seen a slight decline of 0.2% in the past day, totaling approximately $27.56 billion. This coincides with a 7% drop in open interest volume, which now stands at $76.14 billion. 

These shifts in open interest metrics could indicate a cooling off of leveraged positions, possibly reducing the risk of further long squeezes and contributing to market stabilization.