Capitulation of $3.2 billion on Bitcoin as the Fed fuels market uncertainty

Bitcoin and the broader crypto market posted modest gains over the past 24 hours, even as new U.S. jobs data complicated expectations for near-term rate cuts. The January jobs report showed hiring remained strong, but growth in several sectors appeared to be held back. Markets were hoping for weaker data to strengthen the case for monetary easing. Instead, traders faced mixed signals.

Historic capitulation: $3.2 billion in realized losses

Bitcoin rebounded 1.25% on the day, after briefly dipping below $60,000 last week. This retreat resulted in one of the greatest episodes of capitulation on record. According to Glassnode, losses over the period reached $3.2 billion, even surpassing those incurred during the collapse of Terra in 2022.

The Checkonchain platform describes this movement as “typical capitulation”: rushed sales, increasing volumes and forced exits of less resilient investors.

The net realized profit/loss indicator (7-day exponential moving average) plunged to -$1.5 billion per day, a one of the sharpest falls in the history of bitcoin. The movement, sudden and vertical, is reminiscent of the tremors of June 2022, although it is more massive in absolute value.

The data indicate that these losses mainly come from recent cohorts (2024–2026). Short-term investors were therefore the most affected.

Historically, such losses often signal rapid readjustments, followed by rebounds or consolidation phases, such as in March 2020 or June 2022. The market once again appears to be going through a deleveraging episode, with forced liquidations and a reduction in speculative positions.

Leverage purged: the derivatives market in sharp decline

Analysis of derivative markets confirms this phase of capitulation:

• Net losses exceeded $1.5 billion per day at the height of the movement.
• The selling pressure comes almost exclusively from new investors.
• Leveraged positions were largely closed out.
• Volumes on spot, futures, options and ETFs reached record highs.

Derivatives data supports the narrative of capitulation. According to CoinGlass, the total open interest of bitcoin-related futures contracts fell sharply alongside the price. After peaking around $100 billion during the rally toward six figures, it fell back as bitcoin lost value. This contraction is explained by both forced liquidations and long positions closed voluntarily.

Price (yellow on the chart) and open interest (green) fell together, a sign of widespread deleveraging rather than a wave of new short positions. Conversely, when open interest climbs amid weakness, it often signals an increase in bearish bets.

This time, traders reduced their exposure across markets, purging excess leverage. Similar contractions in previous cycles have often coincided with high-volatility reset phases, before a gradual return to equilibrium.

Fear reaches new heights as bitcoin attempts rebound

Although hopes of an imminent rate cut are fading, remaining market participants appear reluctant to sell further. Predictive markets indicate that the probability of a 25 basis point cut as early as next month has fallen sharply.

On Polymarket, expectations fell from 18% to 7%, while Kalshi showed a similar decline, from 20% to 7%. Typically, such lower expectations weigh on risky assets, as higher yields make bond investments more attractive.

Still, bitcoin's positive reaction suggests that selling pressure is running out of steam. The Crypto Fear & Greed Index has recently touched levels of extreme pessimism, not seen since the collapse of FTX in 2022.

Now, all eyes are on the upcoming U.S. Consumer Price Index (CPI) report. This inflation data could provide a clearer read on the Federal Reserve's strategy going forward. Until then, the markets seem to have completed an express reset phase, leaving traders on the lookout for signals of stabilization… or new volatility.