Information Bias and Funding Flows: Bearish Signals Dominate the Bitcoin Market

Bitcoin market conditions are experiencing extraordinary pressure. Recent data shows the price has dropped to $68,890, with various technical indicators warning of an information bias dominating trader decisions. An in-depth analysis of market dynamics proves that liquidity shocks are not only technical issues but also psychological.

Futures Funding Flow Index Plummets to Critical Level

Since February 2, analyst Axel Adler Jr. has been closely monitoring the Bitcoin Futures Funding Flow Index. According to BlockBeats data, the index has experienced a dramatic collapse from around 50 to 7.1%—a record low in the past month. The 7.1% figure is an extreme signal that is very rare, marking a zone known as “market capitulation.”

Since January 28, the trend has shown a consistent pattern: the market continues to fall into bearish territory. Especially after January 30, the index broke through the 45% threshold, a level that technically defines a transition into a bearish market. To exit this situation, the index needs to rise above 45% and Bitcoin prices must stabilize. So far, each price recovery has been a temporary correction within the dominant bearish structure.

Local Stress Index: An Extreme Risk Warning Signal

In addition to monitoring funding flows, analysts also use the Bitcoin Local Stress Index (LSI), which integrates volatility, funding rates, and leverage to holistically assess market conditions. When the price fell below $78,000 on the night of January 31, this index spiked to a peak of 92.5—an historically high level often correlated with local price bottoms.

Over the weekend, the LSI remained in the “tail-risk warning” zone, indicating that all pressure factors—downtrend, increased volatility, and biased funding flows—were active simultaneously. The latest reading reached 73, still within a high range. If the LSI then surpasses 80 under new pressure, it would signal a continuation of the waterfall decline—a scenario illustrating how panic-driven information bias can amplify massive sell-offs.

Information Bias and Market Capitulation: When Liquidity Reaches Limits

This phenomenon reflects a broader “market capitulation” situation. The combination of a low Funding Flow Index and a high Local Stress Index reveals an information bias driving trader decisions. When pressure reaches its limit, the market no longer functions as a rational price discovery mechanism but is driven by panic selling and asymmetric information.

This information bias manifests in two aspects: first, traders overreact to negative news and underestimate the market’s recovery potential; second, there is an information gap between large players and retail investors, creating an imbalance in order execution. The result is unhealthy liquidity absorption and extreme volatility.

Bitcoin’s journey from $78,000 to $68,890 reflects how panic bias and distorted information can accelerate declines. The key to recovery lies in restoring market sentiment and neutralizing the effects of information bias that have trapped traders in a selling behavior. Until these indicators show clear reversal signals, any rebounds remain technical within the larger bearish structure.