Bitcoin hits new highs in the absence of ‘unhealthy’ leverage use — Will the rally continue?

Bitcoin’s recent rally to a new all-time high of $109,827 on May 21, while initially met with skepticism regarding its sustainability, shows promising signs of further growth. Analysis of market data reveals a healthier market structure than previously observed, suggesting a spot-driven rally rather than one fueled primarily by derivatives.

Several key indicators support this conclusion. The annualized Bitcoin futures premium currently sits at 7%, well within the neutral range of 5% to 10%, significantly lower than the 15% observed during the January rally. This lower premium, coupled with the absence of excessive leverage, indicates reduced risk of a derivative-driven price correction. Furthermore, the lack of a Coinbase premium—where Bitcoin trades at a higher price on Coinbase than other exchanges—suggests a more evenly distributed buying pressure across exchanges, a sign of market health.

Spot market strength is further evidenced by substantial inflows into spot Bitcoin ETFs. Between May 15 and May 20, net inflows reached $1.37 billion, highlighting significant spot buying activity. This contrasts with the relatively low forced liquidations of bearish BTC futures positions ($170 million between May 18 and May 21) during the recent rally, compared to $538 million during the May 9 rally to $104,000. Options market data also points to a healthy market; while put option demand increased slightly on May 21, it remained within normal parameters, unlike the significantly lower call option volumes observed during the January rally.

Macroeconomic factors may influence Bitcoin’s trajectory. The ongoing tariff war presents a potential headwind. However, the US Federal Reserve’s weak position and potential liquidity injections could alleviate recession concerns, thereby reducing the appeal of government bonds and potentially favoring risk-on assets like Bitcoin, potentially pushing prices beyond $110,000. The combination of healthy derivatives markets, strong spot demand, and supportive macroeconomic conditions suggests a positive outlook for Bitcoin’s price.