The Market Wants To Hurt As Many People As PossibleBitcoin may still revisit the mid-$70Ks as liquidation clusters, max pain levels, and weak sentiment all converge into one key zone.
One of the most reliable principles in markets is that in the short term, price tends to move toward wherever it can cause the most pain to the most participants. It’s not a conspiracy, it’s liquidity. This week, we’re going through several derivatives and sentiment signals to try and map out where the current pain points lie, both to the downside in the near term and, interestingly, to the upside a little further out. Haven’t got time to read the full article:
AASIThe Active Address Sentiment Indicator (AASI) tracks the divergence between the 28-day change in active Bitcoin addresses and the 28-day change in price. When price runs ahead of network activity, the indicator moves into its upper band. When price falls below what network activity justifies, it moves into its lower band.
Figure 1: AASI dropping below the lower green band before re-crossing has historically been a reliable buy signal. The recent rally pushed the indicator into that upper red zone, which we flagged in last week’s piece as a signal that the move may not have been fully supported by genuine new network participation. Since then, the indicator has crossed back below that upper band, and price has pulled back accordingly. What’s useful now is looking at where the lower green band sits. That level, where price would be considered oversold relative to network activity, is in the mid-$70,000s based on current data. A drop to that zone and a subsequent recross above the band would historically constitute a buy signal. LiquidationsLiquidation heatmaps show the price levels where the highest concentrations of leveraged positions would be forcibly closed, so it’s a useful lens for understanding near-term price targets. The current map shows a dense cluster of liquidations in the mid-$70,000s, with multiple levels stacked closely together in that range.
Figure 2: This heatmap highlights a significant cluster of liquidations in the mid-$70,000 region. When clusters like this exist directly beneath the current price, the market has a tendency to sweep through them, closing those positions and generating liquidity for larger participants to enter. This isn’t guaranteed to happen. But the alignment between the liquidation cluster and the AASI lower band adds to the case that the mid-$70,000s represents a meaningful near-term area of interest on the downside.
Max PainOptions market data from Deribit adds another layer to this picture. The max pain price, or the level at which the highest number of option contracts expire worthless, causing the greatest financial damage to the most participants, is also sitting in the mid-$70,000s for end-of-month expiry.
Figure 3: Using Deribit’s options market data to determine the max pain price. But here’s the more interesting part. When you look out to end-of-July options expiry, the max pain price is actually above current levels, in the low-to-mid $80,000s. It means that over a slightly longer timeframe, the market is positioned such that a move higher, not lower, would cause the most pain to the most participants. With open interest climbing steadily throughout the current ranging period and funding rates recently turning negative, meaning an increasing number of participants are actively shorting, the conditions for a short squeeze further out are quietly building. Funding RatesThe 7-day average of coin-denominated Bitcoin funding rates has just turned negative for only the 11th time in the past three years. Negative funding means the majority of perpetual futures traders are paying to hold short positions, so they’re actively betting on further downside. When this average turns negative, it has historically been a reliable signal that the market has become excessively pessimistic, and on most prior occasions, it has coincided with or immediately preceded meaningful price recoveries. Figure 4: The hourly coin-denominated Bitcoin Funding Rate has briefly turned positive.
We also saw a brief spike of positive funding on the short-term hourly chart as price bounced from recent lows, a sign that a wave of dip buyers piled in quickly. That kind of reactive positioning often precedes a further move down before any sustained recovery, as those positions get shaken out. Fear & GreedThe Bitcoin Fear & Greed Index is currently sitting close to ‘Extreme Fear’. Social media comment sections, video reactions, and the general narrative around Bitcoin right now are overwhelmingly bearish. This signals that people are not just cautious, but they’re actively confident that prices are going lower. Figure 5: The Bitcoin Fear & Greed Index currently indicates significant fear.
This isn’t a contrarian view. When the crowd is this uniformly positioned in one direction, the contrarian play is the opposite one. That doesn’t mean lower prices can’t happen; they can, and it’s worth being prepared for that scenario. But the combination of extreme fear readings, negative funding rates, and maximum options pain currently sitting below the market is not the picture of a market about to collapse further. It’s the picture of a market that has largely priced in the bad news already. Closing ThoughtsIn the near term, the data points toward some further downside pressure, with the mid-$70,000s as the zone where multiple signals converge, liquidations, AASI lower band, and near-term options max pain all aligning. For the medium term, the open interest is climbing, the crowd is heavily short, and options data for a couple of months out suggests upside would cause more pain than downside. My take is to think probabilistically, cover your bases, and don’t let the comment section make your investment decisions for you. And watch our most recent YouTube video here: Half A Billion In Bitcoin Faces Liquidation — Here’s My Next Move 
Matt Crosby (@MattCrosbyPro) Director of Research & Analytics Bitcoin Magazine Pro
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