Bitcoin (BTC) has once again surged past the critical $70,000 mark, inching closer to retesting the record highs it set in March. Unlike the previous surge, this latest breakout is distinct due to its stability and favorable macroeconomic conditions. Let’s explore the key factors behind this trend.
Less Speculative Froth
A market characterized by excessive speculative activity is often prone to sharp corrections. However, the current bitcoin rally shows no such speculative frenzy. According to CoinMarketCap data, perpetual futures linked to bitcoin and other cryptocurrencies are not exhibiting signs of excessive leverage.
The open interest-weighted funding rates, while still positive, are significantly lower than the peaks seen in March. This indicates a dominance of bullish long positions, with bulls willing to pay bears to maintain their positions. Exchanges collect these funding rates every eight hours.
The absence of speculative froth suggests that the recent breakout above $70,000 might be more sustainable than the one in March. This trend is also observed in other large-cap cryptocurrencies.
Velo Data’s chart shows that funding rates for large-cap coins, including BTC, are currently in the green zone, representing an annualized range of 10% to 20%. In contrast, rates exceeding 100%—marked by red bars—indicate an overheated market.
As of now, the annualized three-month futures basis (premium) for bitcoin on major offshore exchanges like Binance, OKX, and Deribit ranges between 10% and 13%, significantly lower than the March highs above 25%, according to Velo Data. This measured rise in the premium further indicates a lack of speculative fervor.
Greg Magadini, Director of Derivatives at Amberdata, commented in a weekly newsletter, “Looking at the current market positioning, I don’t think things are anywhere near as frothy as they were in late March/early April. We can clearly see that the futures basis is much lower than around peak positioning, and the underlying open interest buildup is rather stable for BTC.”
Positive Macroeconomic Environment
The current macroeconomic environment appears more supportive of risk assets, including cryptocurrencies, compared to March. Bloomberg reports that investment banking giants like JPMorgan Chase & Co. and Citigroup Inc. expect the U.S. Federal Reserve to cut the benchmark borrowing rate by 25 basis points to the 5% to 5.25% range next month, signaling a shift towards renewed liquidity easing. Traders, as indicated by Fed fund futures, are pricing in rate cuts for the year’s final quarter.
Additionally, the European Central Bank and the Bank of Canada have already initiated rate cuts.
This bias towards rate cuts starkly contrasts with the situation in March, when traders feared that resurgent inflation would force the U.S. central bank to resume rate hikes.
Moreover, the recent decline in oil prices is favorable for bitcoin. According to LondonCryptoClub, the price per barrel of West Texas Intermediate (WTI) crude has dropped by over 13% to $75.50 within a month, signaling disinflation and putting downward pressure on government bond yields. This decline in yields, often referred to as risk-free rates, encourages risk-taking in financial markets.
“Oil is now 12% off its highs and up just 7% year-to-date. It’s hard to play a ‘reflation’ narrative with oil falling, and lower oil prices typically pull 10-year inflation expectations lower, which in turn pulls 10-year U.S. yields lower… which can indeed help push bitcoin higher,” noted the founders of LondonCryptoClub.
In summary, Bitcoin’s latest surge above $70,000 is characterized by reduced speculative activity and a more favorable macroeconomic backdrop, potentially paving the way for a more sustained rally.
