Author: Blockchain Knight

Bitcoin had its worst week since the end of 2022 last week. The current core issue is not "whether it is a capitulation sell-off," but rather identifying the signs of seller exhaustion that have emerged during this sell-off.

Market sell-offs are often accompanied by observable traces such as leveraged exits and soaring risk indicators, rather than a single catalyst or an instantaneous conclusion.

Cross-asset risk aversion is an important prelude to this sell-off. Previously, the Nasdaq fell 4.6% over three trading days, the S&P 500 index dropped 2.6%, the VIX index surged 33%, market liquidity tightened, and leverage costs remained high.

As a high-beta risk asset, the cryptocurrency sell-off was not driven by a single piece of crypto news, but rather a concentrated reaction to the accumulation of positions during a period of market calm. Crowded speculative positions and thin liquidity became key factors in exacerbating the sell-off.

At the beginning of last week, the liquidation scale in the crypto market exceeded $3.3 billion, showing a reduction in open contracts, a decline in financing rates, and a concentrated outbreak of liquidations, all while being accompanied by short-term price volatility. This pattern may form a tradable low, but it does not guarantee the durability of that low.

ETF fund flows reflect traditional fund sentiment, with over $3 billion in Bitcoin ETF redemptions in January. From January 20 to February 5, net outflows reached $3.5 billion. The continued negative fund flow weakened marginal demand, leading to a lack of strength in rebounds, while also distinguishing between fund flow capitulation and holder capitulation as two different scenarios.

CryptoQuant data shows that on February 5, the short-term holder SOPR dropped to 0.93 (below 1.0 indicates recent buyers are selling at a loss), with its 30-day moving average close to 0.985, indicating that the sell-off has transitioned from profit-taking to loss-exiting.

Profit supply fell from 55.26% to 52.11% in one day, showing that a large number of investors are trapped in losses, accelerating the washout rhythm.

However, this sell-off still lacks the key confirmation signals of seller exhaustion. The liquidation volume needs to show a "sharp rise followed by a sudden drop," stabilization after a contraction in open contracts, a slowdown in ETF fund outflows, and prices must stop making new lows.

The current price rebound above $70,000 is merely a phase signal. If potential demand does not recover, the rebound is likely to fade quickly.

Moving forward, four indicators need to be closely monitored: ETF fund flows, liquidation intensity, short-term holder SOPR trends, and stock market stability.

Only with simultaneous improvement in these indicators can we confirm the end of the forced sell-off phase, thereby distinguishing whether this rebound is a short-term correction or the starting point of a trend reversal.

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