Bitcoin’s struggle to maintain its value above $71,000 since March 25 has led some to believe that bearish momentum is building. However, a closer look at the BTC derivatives market reveals a more stable environment as the previous wave of optimism has tempered.
One factor supporting the bullish case for Bitcoin is the resilient U.S. inflation figures and the unsustainable fiscal trajectory of the U.S. government. Market analyst MatticusBTC attributes the surge in inflation to the massive monetary expansion implemented by the U.S. Federal Reserve in the past year. This may force the Federal Reserve to maintain elevated interest rates, but it also poses challenges, particularly in relation to the interest burden of the U.S. government debt.
Higher interest rates can negatively impact businesses and households, slowing down economic growth and reducing investors’ appetite for risk-on assets. However, in 2024, investors began seeking alternatives to U.S. Treasury bonds, leading to a surge in both gold and Bitcoin prices. Investors have shown less interest in a 4.7% fixed-income yield as a hedge against inflation, as seen through the drop in demand for U.S. government 2-year notes.
The performance of the stock market could also influence Bitcoin’s price in the near term. The recent decline in the S&P 500 index from its all-time high suggests a potential economic downturn, and given the strong correlation between Bitcoin and the stock market, Bitcoin’s price may initially fall if stock market issues persist.
Despite facing resistance at the $72,000 level, the BTC futures and options markets are currently displaying a level of neutrality. Two critical indicators highlight a healthier demand for leverage compared to the end of March, which had raised concerns about excessive leverage. The funding rate for perpetual contracts has decreased from 1.5% per week to 0.3% weekly, signaling reduced pressure on traders using leverage for long positions and setting the stage for potential bullish momentum.
Analyzing the balance between call and put options demand can further confirm market sentiment. Data shows that call options have consistently outpaced put options in the past few weeks, indicating lower demand for protection against a price decline. This is interesting considering Bitcoin’s previous tests of the $64,500 support level in early April.
While there is no guarantee that Bitcoin will surpass its all-time highs in the near future, the threat of a major sell-off triggered by excessive leverage seems to have diminished. Barring a significant drop in overall economic conditions, it is unlikely that Bitcoin will fall below $65,000.
Disclaimer: This article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.