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After last Thursday’s (Feb 5th, 2026) flash crash pushed BTC briefly to $60K, sentiment in derivatives markets has soured further.
Short-dated BTC and ETH implied volatility surged to levels last seen during the collapse of the FTX exchange in November 2022, as the demand for downside protection against further drops in spot price rose to multi-year highs.
The 50+% drawdown in BTC from its October 2025 all-time high dragged the rest of the crypto market down with it – with ETH falling below $2,000 and SOL returning to 2023-levels. Funding rates across the majority of large-cap altcoins turned negative, with the 7-day average funding rate for SOL falling to its lowest since the October 10, 2025 liquidation.
Notably, BTC dominance has held steady despite the drawdown, with capital flowing out of the broader crypto market proportionally rather than rotating into Bitcoin as a relative safe haven.
Altcoin dominance, meanwhile, has continued its decline from ~36% in October to ~30% - with large-caps like ETH, XRP, and BNB all down over 60% from their highs and SOL down more than 70%.
Block Scholes’ Risk Appetite Index measures the level of euphoria (above 1) or panic (below -1) in the spot market. Momentum in this index shows a strong relationship to spot returns.
The past week has seen major whipsaws in spot prices that have taken their toll on derivatives markets.
On Thursday Feb 5, 2026, Bitcoin saw its largest single-day drawdown since the collapse of the FTX exchange in November 2022, briefly touching $60K and erasing all of its post-Trump 2.0 gains. On Friday, it then recovered almost all the previous day’s losses just as fast and rallied back above $70K – a level it has since consolidated around for most of this week.
In last week’s edition of our report, we mentioned that while sentiment in derivatives markets had clearly weakened, options traders had yet to price in the same levels of panic or volatility that had coincided with previous major downturns in spot prices.
As BTC fell briefly wicked down to the below $60K handle, however, that changed.
At-the-money implied volatility, a measure of forward looking volatility expectations, rose to its most elevated levels since the November 2022 crypto crash for BTC, with 7-day volatility exceeding 100% – a clear sign of the heightened demand from options traders for downside protection.
We saw similar moves in ETH options markets too, with short-dated volatility reaching their most extreme since the 2022 bear market crash.
Therefore, despite not quite reaching the same levels of demand as back in 2022, a dip to $60K and sub-$1800 for BTC and ETH respectively was enough to significantly increase the price of optionality with traders willing to pay extreme premiums for put options.
Beyond the majors BTC and ETH, sell-side pressure in altcoins has also pushed large blue-chip alts below multi-year support levels.
SOL for example is down 38% over the past month, trading at its lowest levels since late December 2023, with digital asset treasury companies that hold the token collectively sitting on more than $1.5B worth of unrealized losses. Additionally, DOGE has pared back all of its gains since President Trump’s election victory and the Department of Government Efficiency provided tailwinds for the token, and is now trading at its August 2024 price.
As we mentioned last week, the sole outperformer among major altcoin tokens is Hyperliquid’s HYPE token, which despite suffering losses last week, is still up 16% year-to-date.
As BTC’s spot price dropped to $60K, funding rates across major altcoins turned negative – a sign that short traders were so bearish they were willing to pay a recurring premium to maintain their short positions. That conviction in lower prices was most clear in SOL for example, where the 7-day average funding rate fell to -0.04%, its lowest since the October 10, 2025 liquidation.
Interestingly, despite the major drawdown in BTC’s own price, its funding rates did not turn meaningfully negative during the crash, which could suggest the selloff was concentrated in spot markets, and less driven by leverage or a large number of short traders piling into perpetual futures contracts.