Bitcoin, major tokens drop as traders position for downside protection

Crypto markets opened the week under pressure, extending losses after a volatile weekend as bitcoin $BTC$68,849.82 showed tentative signs of stabilizing below $70,000.

Even though the largest cryptocurrency dropped more than 2.8% in the last 24 hours, it remains well off its recent lows of around $60,000. Still, it has struggled to regain momentum after last week's steep drop that reignited debate over whether the market has entered a deeper bear phase or is nearing a bottom.

Bitcoin bulls pointed to slowing downside moves as a sign of exhaustion, even as critics took victory laps. Nevertheless, attention is being paid to software stocks, some of which started to rebound as concerns of a deeper collapse ease.

The CoinDesk 5 Index (CD5) fell 3.4%, with all five of the largest cryptocurrencies declining. Ether $ETH$2,025.47 dropped about 5%, underperforming bitcoin as traders cut risk across major tokens, but held above the psychological support at $2,000. The broader CoinDesk 20 (CD20) index is down 3.7%.

Derivatives Positioning

• $BTC futures are seeing a clear bearish shift after open interest (OI) slid from $19 billion to $16 billion over the last week, marking a period of sustained deleveraging.
• Funding rates on Bybit (-2.24%) and Binance (-0.5%) have flipped neutral-to-negative, signaling that short sellers are now leading the narrative. With the three-month basis compressing to 3%, institutional demand has cooled, reflecting a broader derivatives landscape dominated by risk-off sentiment.
• Options data confirms this defensive shift, with one-week 25-delta skew for $BTC rising to 20% and call dominance dropping to 48%.
• The implied volatility (IV) term structure is now in extreme backwardation, with front-end volatility at 85.03% dwarfing long-term expectations (~50%). That's a massive premium for immediate protection against near-term price drops.
• Coinglass data shows $397 million in 24-hour liquidations, with a 45-55 split between longs and shorts. $BTC ($234 million), $ETH ($74 million) and SOL ($14 million) were the leaders in terms of notional liquidations.
• The Binance liquidation heatmap indicates $68,160 as a core liquidation level to monitor in case of a price drop.

Token Talk

• Crypto wallet Rainbow debuted its RNBW token last week, but the launch wasn’t smooth.
• The Ethereum-based project introduced the token on the layer 2 network Base, with the price tumbling to $0.025, a 75% drop from its $0.10 initial coin offering (ICO) just two months earlier. It has since risen to $0.031
• That drop wiped out expectations from speculators betting on a $100 million fully diluted valuation (FDV). On Polymarket, odds of that bet reached a near 80% high earlier in the year. The FDV is now hovering closer to $31 million.
• At the heart of the chaos were delays in token distribution to early buyers and participants in Rainbow’s onchain rewards program. Some users said they had not received their airdropped tokens hours after the launch.
• Rainbow’s cofounder Mike Demarais blamed backend infrastructure buckling under demand. U.S.-based investors won’t be able to fully access their tokens until December 2026, according to vesting terms.
• Rainbow raised $18 million in a 2022 Series A led by Reddit cofounder Alexis Ohanian’s firm, Seven Seven Six. The wallet is known for gamified features and a points system tied to the RNBW token.