Key Takeaways:
- Continued spot market accumulation through Bitcoin ETFs and strategies risks providing a floor for Bitcoin prices and triggering a short squeeze.
- Negative financing rates and cautious options distortions could lock in the weakness if the Fed’s policy changes or higher oil prices trigger higher inflation.
Bitcoin (BTC) price remained above $76,000 last week, moving away from this year’s low of $60,500. The recent bullish momentum has come as crude oil prices have surpassed $100 and the S&P 500 has hit new trading highs, but futures market data could point to the end of Bitcoin’s short-term rally.
According to CoinGlass data, a total of $1.4 billion was built in leveraged short positions totaling close to $80,000 in the last 48 hours, with alarm heightened as Bitcoin was rejected at $79,500.
Expected Bitcoin futures liquidation level (USD). Source: Coinglass
Fed decision, inflation data could push Bitcoin above $80,000
While it is clear that investor appetite for bullish Bitcoin leverage is lacking, a downside trap could arise if the U.S. Federal Reserve adopts a less restrictive monetary policy or if investors expect higher inflation, reducing the expected net return of bond assets.
Annual funding rate for Bitcoin perpetual futures. source: lightness
The annual funding rate for Bitcoin perpetual futures has remained negative for most of the past two weeks, a typical sign of growing confidence in the bear market. Interestingly, this happened while the price of Bitcoin surged from $72,000 to $78,000 on April 9 and most bets were losing money at $76,700. A rally above $80,000 will likely force traders to liquidate their positions.
Data shows that investors no longer expect the Federal Reserve to raise interest rates even though the price of Brent crude oil has recovered to the $100 level. Pressure from higher energy prices is having a knock-on effect on inflation expectations, but the Fed is also concerned about a weakening job market and economic growth.
Implied target interest rate probability for the September 16 Fed meeting. Source: CME FedWatch Tool
Current U.S. Treasury futures contracts suggest a 20% chance of interest rates falling by September, a complete reversal from a month ago. Traders realized the Fed was in a tough spot, making the 3.95% yield on five-year U.S. Treasury bonds less attractive. Lower interest rates put upward pressure on inflation.
Continued Spot Bitcoin Buying Supports BTC’s Bullish Momentum
Bitcoin’s bullish momentum has been driven by the spot market, evidenced by Strategy (MSTR US). $255 million added to BTC From April 20 to April 26, there was a net inflow of $824 million into U.S.-listed Bitcoin exchange-traded funds (ETFs). Bitcoin Buyers continued to accumulate. Despite failed attempts to hold more than $79,000.
relevant: A significant Bitcoin trend change is in the works, but analysts say a daily close above $80,000 is needed.
Professional Bitcoin traders need to evaluate the options market to determine if they are effectively bearish.
Deribit’s Bitcoin Options 30-Day Delta Skew (Put Call). Source: Levitas
Bitcoin options delta skew shows that put (sell) options are trading at an 11% premium over call (buy) options, consistent with a bear market. Whales and market makers are uncomfortable with the downside risk, which strengthens the case for a potential downside if Bitcoin regains $80,000 in the near term.
Additional upward momentum for Bitcoin is unclear, but as long as spot market demand remains strong, pressure on short positions could continue to grow. If the current accumulation trend continues along with the Fed’s policy easing, the resulting liquidity pressure could easily push the price well above the $80,000 resistance level.