Key takeaways:
- Persistent spot market accumulation from Bitcoin ETFs and Strategy provided a price floor for Bitcoin and threatens to trigger a short squeeze.
- Negative funding rates and cautious options skews could trap bears if the Federal Reserve policy shifts or high oil prices trigger higher inflation.
Bitcoin (BTC) price sustained levels above $76,000 for the past week, distancing itself from its year low at $60,500. The recent bullish momentum came as crude oil prices jumped above $100 and the S&P 500 hit new trading highs, but futures market data may point to a short-term rally-ending outcome for Bitcoin.
A total of $1.4 billion in leveraged short positions near $80,000 has been built over the past 48 hours, according to CoinGlass data, and Bitcoin’s rejection at $79,500 has raised alarm.
Estimated Bitcoin futures liquidation levels, USD. Source: CoinGlass
Federal Reserve decision, inflation data may push Bitcoin above $80,000
The lack of investors’ appetite for bullish Bitcoin leverage has been evident, but a bear trap could spring if the US Federal Reserve adopts a less restrictive monetary policy or if investors anticipate higher inflation, which would reduce the expected net returns from fixed-income assets.
Bitcoin perpetual futures annualized funding rate. Source: Laevitas
The Bitcoin perpetual futures annualized funding rate has remained mostly negative over the past two weeks, a typical sign of growing bearish confidence. Curiously, this happened while Bitcoin’s price jumped to $78,000 from $72,000 on April 9 and most of those bets are at a loss at $76,700. A rally above $80,000 would likely force traders to close their positions.
Data show investors are no longer anticipating interest rate hikes from the Fed, even as Brent crude prices have reclaimed the $100 level. The pressure from high energy prices has a cascading impact on inflation expectations, but the Fed is also concerned with the weakening job market and economic growth.
Implied target rate probabilities for Sept. 16 Fed meeting. Source: CME FedWatch tool
US government bond futures contracts presently indicate 20% odds of interest rates decreasing by September, marking a complete turnaround from one month prior. Traders realized that the Fed is in a tough spot, hence the 3.95% yield on 5-year US Treasury became less appealing. An interest rate cut exerts upward pressure on inflation.
Sustained spot Bitcoin buying supports BTC’s bullish momentum
Bitcoin’s bullish momentum has been driven by the spot market, evidenced by Strategy (MSTR US) adding $255 million in BTC between April 20 to April 26 and the $824 million net inflows into US-listed Bitcoin exchange-traded funds (ETFs). Bitcoin buyers continued to accumulate despite the failed attempts to hold above $79,000.
Related: Critical Bitcoin trend change in works, but analysts say daily close above $80K required
To determine if professional Bitcoin traders are effectively leaning bearish, one should assess the options markets.
Bitcoin options 30-day delta skew (put-call) at Deribit. Source: Laevitas
The Bitcoin options delta skew shows put (sell) options trading at an 11% premium relative to call (buy) options, consistent with a bearish market. Whales and market makers are uncomfortable with downside risk, which reinforces the thesis of a potential bear trap if Bitcoin reclaims $80,000 in the near term.
Further Bitcoin bullish momentum remains far from certain, but as long as spot market demand remains strong, the pressure on short positions may continue to mount. If the current accumulation trend persists alongside a softening of Federal Reserve policy, the resulting liquidity squeeze could easily propel the price well beyond the $80,000 resistance level.
