A Bitfinex market report has said Bitcoin’s latest rally relied primarily on spot demand, not excessive leverage. Analysts believe this puts the market in a favorable position to absorb selling pressure if conditions become less conducive.
The analysts highlighted sustained ETF demand as key to counter a rate hike by the Federal Reserve in September.
Spot Demand Fueling Bitcoin Rally
According to the report, sustained spot demand and manageable leverage levels indicate the market is not overheating. CoinMarketCap data shows BTC trading around $78,731, up almost 1% in 24 hours, but down 2.32% over the past seven days. The flagship cryptocurrency has seen a resurgence, reclaiming $80,000 for the first time since May and briefly crossing $81,000. The rally was driven by sustained ETF demand, short covering, and Treasury buybacks.
However, the rally lost momentum after hitting resistance at higher levels. Federal Reserve Chair Kevin Warsh’s comments that interest rates could increase also added pressure, pushing the price to a low of $76,587.
Bitfinex analysts added that the derivatives market has not seen a rapid build-up of leverage typically observed with overheated rallies. Coinglass data shows Bitcoin open interest is currently $54.02 billion, significantly higher than at the beginning of August. However, the increase has been gradual, with basis levels remaining on the lower side. The analysts said in the report:
“We are in a market driven by spot buying and, notwithstanding large short liquidations, open interest has only gradually increased, while basis has remained relatively low and at healthy levels historically.”
Bitfinex identified $77,100 as an important support level, adding that sustained spot demand indicates a balanced market.
Bitcoin ETF Data
Spot Bitcoin ETFs have recorded just over $3 billion in inflows over nine consecutive sessions between August 17 and August 27. However, the inflow streak snapped on Friday, with the ETFs recording $201.9 million in outflows. ARKB registered $114.9 million in outflows, followed by BITB ($49.7 million) and IBIT ($33.4 million). Inflows turned positive on Monday, with spot Bitcoin ETFs recording $216.7 million in net inflows. The ETFs recorded $924.5 million in net inflows last week despite Friday’s outflow.
Institutional interest in BTC has also registered a sharp uptick and absorbed Bitcoin sold by large holders. According to Bitfinex, whale addresses with 1,000 and 10,000 BTC have sold 50,500 BTC since June, while institutional holdings associated with ETF platforms and exchanges have increased by 59,100 BTC. The analysts also said custodial balances rose by 31,500 BTC during the recent rally.
“While whales took profits during the rally, institutional demand absorbed that supply, indicating that assets moving into these regulated vehicles may be less prone to sudden liquidation based on short-term macroeconomic news.”
Focus On Federal Reserve Rate Hike
BTC’s recent price action could face pressure from a Federal Reserve rate hike. Fed Chair Warsh’s comments at Jackson Hole implied an increased likelihood of an interest rate hike. CME-implied odds of a rate hike rose from 39.9% to 57% following Warsh’s comments. The two-year Treasury yield also rose to 4.31%, while the dollar reached a two-week high.
Analysts flagged stubborn inflation as a key reason for the Fed’s restrictive monetary policy. Headline Personal Consumption Expenditures Inflation is at 3.7%, while core inflation is at 3.3%. According to Jeff Mei, Chief Operating Officer of BTSE, Warsh’s comments could dampen sentiment around Bitcoin because an interest rate hike could reduce liquidity.
“For a sustained rally, we need a few things to happen. First, ETF demand has to stay strong across all ETF products, and not just BlackRock’s IBIT ETF. Second, we need better inflation data for the Fed to back off and keep rates steady.”
$80,000-$83,000 Key Levels For Bitcoin
One of the key drivers of Bitcoin’s rally was the Federal Reserve doubling Treasury buybacks. The decision pushed bond yields and the dollar lower, while traders had taken short positions against Bitcoin. According to Jeff Ko, chief analyst at CoinEx, the short squeeze has largely played out, and spot demand has become a key factor.
“Treasury buybacks pushed yields and the dollar lower, and that impulse collided with crowded short positioning to produce the squeeze. What matters from here is whether spot buyers keep absorbing supply around $80,000.”
Ko believes the $80,000-$83,000 zone is key because it could show if retail buyers can substitute the buying pressure created by the forced short covering.
“It is a major supply zone, and the point at which the rally stops being a short squeeze and becomes a test of real capital allocation.”
Upcoming Economic Data
Market attention now turns to a slew of upcoming releases before the Federal Reserve’s September meeting. ISM Manufacturing and JOLTS data will be released on Tuesday, followed by ADP employment figures and the Federal Reserve’s Beige Book on Wednesday, and ISM Services on Thursday.
However, Ko believes the August payroll report, due on Friday, is the most crucial data set before the Fed’s September FOMC meeting. July payrolls fell by 23,000 against an estimate of 80,000, while May and June figures were revised lower by 103,000 jobs. The current unemployment rate is at 4.1%. Meanwhile, the August inflation report is due on September 11.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
