Key takeaways:
Spot market demand through US-listed ETFs and Strategy buying BTC supports Bitcoin’s bullish momentum.
Low leverage among Bitcoin bulls reduces the risk of cascading liquidations even if prices drop another 5%.
Rising inflation concerns negatively impact fixed-income returns, paving the way for an eventual rotation from gold into Bitcoin.
Bitcoin (BTC) faced a 7% correction after flirting with the $76,000 level on Tuesday. The downturn followed a decline in the US stock market after oil prices surged due to Israel attacking Iran’s largest gas processing facility and the US producer price index rising above expectations.
Despite the recent losses, there is no indication that Bitcoin’s bullish momentum has faded, given how the S&P 500 and US Treasuries have behaved amid worsening macroeconomic conditions. Additionally, Bitcoin bulls have avoided excessive leverage, reducing the risks of cascading liquidations.
The S&P 500 index traded merely 4% below its all-time high on Wednesday despite recent weak US job market data and continued pressure from the ongoing war in Iran. The US reported continued jobless claims relatively steady at 1.85 million in the week ending March 7. On Wednesday, the US announced that wholesale prices gained 3.4% in February versus the prior year, the largest gain in 12 months.
As oil prices jumped above $98, investors became more convinced that the US Federal Reserve will not be able to ease monetary policy throughout 2026. CME FedWatch Tool showed that odds for a steady interest rate by September plummeted to 42% on Wednesday, from 89% one month prior, according to implied odds on futures markets.
Bitcoin under pressure as prolonged war risks heighten investors’ risk aversion
Sticky inflation and the prospect of a prolonged war reduced the odds of economic stimulus focused on expansion, causing investors to avoid risk. However, there is no reason to believe that traders anticipate an imminent crash, at least judging by how interest rates are priced relative to inflation expectations.
The 2-year Treasury yield traded at 3.71% on Wednesday, while the Cleveland FED 2-year inflation expectation stood at 2.27%, resulting in a 1.44% adjusted return. During periods of extreme fear, higher demand for government bonds tends to result in near zero or negative returns. Conversely, a lack of confidence in US monetary policy can push the indicator to 2.5% or above.
Even if Bitcoin drops another 5% in the upcoming weeks, there is no indication of excessive leverage demand from bulls, meaning low risk of cascading liquidations. Recent bullish momentum has been supported by the spot market, especially through US-listed spot Bitcoin ETF accumulation and Strategy’s (MSTR) aggressive buying activity.
CoinGlass estimates that $450 million worth of leveraged long Bitcoin futures would be forcefully terminated down to $68,000, representing less than 1% of the current $49 billion aggregate open interest. The Bitcoin perpetual futures funding rate confirms that bears are becoming overconfident as demand for leverage on short positions has increased.
Related: 74% of institutions expect crypto prices to rise in 12 months–Survey
A negative funding rate means shorts are the ones paying to keep their positions open. More importantly, the indicator stood below the neutral 6% to 12% range even as Bitcoin price surged above $76,000, reinforcing the thesis of spot demand sustaining momentum rather than speculation using derivatives markets.
Gold prices dropped to $4,900 on Wednesday, showing signs of exhaustion after holding levels above $4,800 for four weeks. An eventual rotation out of gold could be the trigger for a sustained Bitcoin rally, especially as inflation concerns negatively impact expected returns for fixed-income assets. Overall, there is little indication that Bitcoin’s current bullish momentum has faded.
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