Throughout the previous week, Bitcoin (BTC) has maintained a stable trading pattern. Presently, Bitcoin is valued at $07,052, displaying a minor increase of 0.22%.
Furthermore, BTC has exhibited notable growth on both weekly and monthly charts, surging by 2.81% and 2.89% respectively.
The recent surge in Bitcoin’s price has sparked curiosity regarding the driving forces behind it. Notably, Cryptoquant analyst Dan has indicated that the surge is likely due to heightened institutional interest and long-term accumulation, as evidenced by a declining Leverage Ratio.
Decline in Bitcoin’s Leverage Ratio
As per CryptoQuant’s data, Bitcoin’s Leverage Ratio has been on a downward trend since November 21st. This decline in the Leverage Ratio indicates a decrease in Open Interest (OI) relative to the available BTC on centralized exchanges.
Historically, a lower Leverage Ratio minimizes the risk of liquidation cascades, resulting in price movements that are more organic and less derivative-dependent.
Furthermore, the ratio of OI to market capitalization has decreased compared to prices, indicating that price surges are predominantly driven by spot demand rather than speculative trading.
A similar trend is observed in the sell ratio, suggesting that long positions are being closed as the market stabilizes.
Notably, there has been a sustained reduction in reserves held by centralized exchanges (CEX). During this period, BTC has been flowing to Coinbase Prime alongside purchases of Bitcoin ETFs. A decrease in CEX reserves signifies a reduced availability of BTC for sale. The influx of BTC into Coinbase indicates significant accumulation by major players, particularly institutional investors.
Combining these market dynamics suggests that Bitcoin’s current market is robust. Price movements are not heavily influenced by leverage, paving the way for more sustainable future price hikes.
Implications for Bitcoin (BTC)
The surge in spot demand coupled with reduced leverage and active institutional accumulation indicates a prevailing bullish sentiment in the market.
For instance, Bitcoin’s Coinbase premium index has remained positive over the past week, signaling not only optimistic sentiments among U.S. investors but also an increased demand from institutional players.
Historically, heightened institutional demand has played a pivotal role in driving up Bitcoin’s prices.
Moreover, Bitcoin’s Fund Market Premium has recently turned positive, suggesting a bullish outlook with long-position holders paying shorts to retain their positions.
This indicates that long-position holders anticipate price increases in the near future.
Additionally, there is a growing trend of accumulation among market participants, with outflows surpassing inflows. Exchange netflow has dropped to -2.9k, indicating more withdrawals from exchanges as investors continue to accumulate.
In essence, Bitcoin is witnessing a strengthening bullish momentum as both retail traders and major holders continue to accumulate. This market behavior indicates a cooling-off period for BTC markets, positioning the cryptocurrency for further upward momentum.
If this sentiment persists, BTC is likely to retest $98,127 in the short term and potentially break above the $100k mark. Any subsequent retracement could see Bitcoin declining to $95,800.