Despite a rebound in Bitcoin's price from around $60,000 towards the $70,000 level, signals from the derivatives market indicate traders remain generally defensive, with no significant emergence of new bullish bets. Data shows that the funding rate for Bitcoin perpetual contracts, which represents the fee exchange between long and short positions, continues to hover below zero. This bearish structure suggests market participants are still positioning for downside risk or require compensation to maintain long positions.
Simultaneously, the open interest for Bitcoin perpetual contracts has failed to recover from its decline since October of last year, highlighting the lack of conviction behind the recent price rebound. According to Coinglass, current open interest is down approximately 51% from its peak in October. Even as Bitcoin rallied from near $60,000 to $70,000, open interest showed no signs of recovery.
Andy Martinez, CEO of Crypto Insights Group, noted that market liquidity and depth have significantly decreased since the sharp drop on October 10, prompting investors to reduce leverage and adopt more conservative trading strategies. He stated that the market is still digesting the events that followed October 10.
The muted reaction in derivatives comes after a period of intense volatility late last week. Bitcoin fell to just over $60,000 last Thursday, its lowest level since October 2024, before quickly rebounding above $70,000 on Friday. However, the price fell back below $70,000 on Monday, underscoring continued fragile sentiment.
The options market is also sending cautious signals. Bitcoin's implied volatility has retreated sharply from around 83% last Thursday to approximately 60% currently, indicating reduced expectations for significant short-term price swings. Nonetheless, positioning remains defensive. Griffin Ardern, Head of Research & Options Trading at BloFin, pointed out that the 25-delta skew for call/put options remains significantly tilted towards puts, reflecting strong investor demand for downside protection.
Ardern explained that the diminished influence of leverage on price action helps reduce volatility and stabilize prices, but it also suggests many investors are choosing to take profits or cut losses at lower levels, moving to the sidelines or even exiting the market temporarily. In his view, a market environment dominated by bearish sentiment is more likely to lead to consolidation rather than a rapid rebound.
Macro-level uncertainties are further reinforcing market caution. Le Shi, Managing Director of market maker Auros in Hong Kong, observed that while the market appeared to find support late last week, participants remain extremely cautious due to several potential market-moving events. These risks include political changes in Japan, volatility in precious metals markets, and concerns surrounding the rally in AI-related stocks.