Bitcoin is testing a critical demand zone after a sharp decline that has shaken investor confidence. The move comes just days after BTC traded near all-time highs, only to reverse and face aggressive selling pressure. Analysts remain divided — some see this as a temporary pullback within the broader uptrend, while others warn that the decline could deepen if support fails.
Adding to this cautious outlook is fresh data from CryptoQuant’s Derivative Market Power (DMP) index, which reflects the influence of derivatives activity on spot market movements. Over the past few days, DMP has bounced back from extremely low levels, signaling an important shift in market dynamics. After crashing to −559K, the index recovered to −420K, highlighting the strongest bear pressure recorded since April 2021.
This reading underscores that short-side dominance in the derivatives market remains elevated, even if the intensity of selling has started to ease. While funding rates and taker imbalances show early signs of stabilization, the overall setup suggests traders are still cautious.
Derivative Market Pressure Eases As Bears Lose Momentum
According to top analyst Axel Adler, the intense wave of short pressure that weighed on Bitcoin in recent days is now showing signs of easing. Adler highlights that funding rates are softening, taker order imbalances are narrowing, and some short positions are gradually being closed. These dynamics suggest that while bears remain active, their dominance over the derivatives market is starting to weaken.
The Derivative Market Power (DMP) index plays a key role in understanding this trend. Formed as a daily aggregated value of OI × Funding × Taker-imbalance, the index provides a snapshot of derivatives’ influence on Bitcoin’s spot price. Here:
Open Interest (OI) measures the total value of outstanding futures contracts. Funding Rates reflect the cost of holding long or short positions, signaling sentiment among leveraged traders. And Taker-imbalance is the ratio of net market buy and sell flows, showing who dominates execution pressure.
When DMP plunges to deeply negative values, it signals strong short-side pressure dragging down the market. Conversely, an upward reversal from such lows typically indicates that the worst of the selling may be subsiding.
Adler notes that the recent bounce in DMP from extreme lows could be an early sign that bears are losing control. If this trend continues, it may set the stage for Bitcoin to stabilize and potentially prepare for a recovery phase. However, sustained momentum will depend on whether bulls can defend critical support zones and absorb any residual sell pressure from derivatives markets.
Bitcoin Enters Critical Price Level
The 12-hour Bitcoin chart highlights a market under pressure after failing to hold above the $120K level. BTC is now trading around $112,575, testing a crucial support zone defined by the 200 SMA (111,153). This moving average has historically acted as a decisive level for mid-term momentum, making the current test highly significant for trend direction.
Price action shows a clear breakdown from the recent consolidation range between $116K and $123K, with lower highs forming since early August. The rejection at $123,217 marked the top of this phase, and since then, sellers have gradually gained control, driving the market back to its deeper support levels. The 50 SMA (116,557) and 100 SMA (116,135) have also been lost, underscoring weakening momentum.
If Bitcoin fails to hold the 200 SMA, the next key area to watch lies around $110K, which acted as resistance in June and could serve as a demand zone on retest. A sustained breakdown below this level could open the door to further downside toward the $105K–$107K range.
Featured image from Dall-E, chart from TradingView
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