Bitcoin Dip Signals: Reasons for a Bullish Turn

In recent days, with the Bitcoin price dropping by up to 30%, investors' eyes have turned to the markets. The fact that Bitcoin futures have fallen below spot prices indicates that fear and panic are at their peak. This situation presents a picture that historically points to periods that result in the bottom of Bitcoin prices.

The re-emergence of the backwardation structure in derivative markets is noteworthy. This occurs when futures are below the spot price and generally reflects stress, mandatory risk reduction, or panic selling. According to Glassnode data, the annualized basis of three-month futures has decreased to about 4%. This rate represents the annual return obtained from a three-month sales strategy by making spot purchases and typically rises during bull markets.

Thomas Young, managing partner of RUMJog Enterprises, states that the backwardation structure generally indicates a turning point. According to Young, this situation brings two scenarios. The first scenario is that the atmosphere of panic dissipates and a strong recovery occurs. The second scenario is that the lowest price is determined by a final wave of selling.

Looking at past backwardation structures, it is noteworthy that Bitcoin bottomed around $15,000 after the FTX collapse in November 2022 and during the SVB crisis in March 2023, it moved below $20,000. It has been observed that after these fluctuations, significant price increases have occurred each time. In August 2023, a reversal point was established at the $25,000 level following ETF uncertainty.

The current collapse of the basis indicates that the demand for leveraged long positions has weakened. This reveals that the market is reassessing its risk appetite after the decline. Under normal conditions, Bitcoin futures usually trade at a slight premium, while the current structure can be seen as an indication that the market is still in the digestion process.