Source: Cointelegraph
Original: “Bitcoin (BTC) Hits New Highs in the Absence of 'Unhealthy' Leverage Use—Will the Rally Continue?”
Bitcoin (BTC) failed to maintain its bullish momentum after reaching an all-time high of $109,827 on May 21, leading traders to question whether the derivatives market was the main driver of this rally. Broadly speaking, the $77 billion in Bitcoin futures open interest undoubtedly played a role. However, a closer look at the data reveals a more positive outlook for further price increases.
The current 7% annualized premium on Bitcoin futures is entirely within the neutral range of 5% to 10%, which has been typical over the past two weeks. During periods of strong optimism, this metric can easily exceed 30%, making the current level relatively low. At the same time, the lack of excessive leverage has alleviated concerns about a rally primarily driven by derivatives.
In contrast, when Bitcoin reached its previous all-time high of $109,346 on January 20, the annualized premium on futures hit 15%, indicating a greater impact of leveraged bullish positions on price. Therefore, the current Bitcoin derivatives market appears healthier, suggesting strong demand in the spot market.
During the bull market in January, Bitcoin was priced at a premium on Coinbase compared to other exchanges. This so-called Coinbase premium is currently absent, indicating a more even distribution of buying pressure—an indication of a healthier market.
While excessive buying pressure on a single exchange is not necessarily bearish, it can more easily trigger unsustainable price spikes when liquidity is low. This data supports the view that the derivatives market is not the main driving force behind the recent price increase.
Additionally, U.S. spot Bitcoin exchange-traded funds (ETFs) saw a net inflow of $1.37 billion between May 15 and May 20, further indicating that spot buyers, rather than derivatives traders, are the primary drivers of this rally.
Despite the lack of strong conviction in Bitcoin futures, several indicators suggest that there is still room for further price increases. From May 18 to May 21, the forced liquidations of bearish BTC futures positions were relatively low at just $170 million, reinforcing the view of a spot-driven rally. In contrast, when Bitcoin rose to $104,000 on May 9, $538 million in liquidations were triggered within three days.
On May 21, the Bitcoin options market showed a slight increase in demand for put (sell) options, but nothing unusual. In contrast, during the previous bull market on January 20, the put/call ratio on Deribit dropped to 0.4x, reflecting lower market confidence due to a decrease in call (buy) option volume.
Bitcoin's rise may be constrained by macroeconomic factors, particularly as the tariff war continues. Nevertheless, the potential for prices to reach $110,000 and above is partly based on the weak position of the U.S. Federal Reserve. Injecting liquidity may alleviate recession fears but also reduce the attractiveness of government bonds, thereby benefiting risk assets like Bitcoin.
Related: As Ether (ETH) prices enter the "key area" of breaking $3,000, Ethereum holders return to profitability.
This article is for general informational purposes only and should not be considered or construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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