Bitcoin [BTC] has been on a notable upward trajectory in the last month, reaching a new all-time high of $108268.
The recent price surge has prompted discussions among industry participants regarding the underlying driving forces. Among these, analysts at CryptoQuant have highlighted a significant increase in spot market demand as a primary factor propelling the price of BTC.
Surging Demand in Bitcoin’s Spot Market
An analysis by Avocado on-chain has put forth the theory that Bitcoin’s bull market cycle is influenced either by the Futures market or the spot market.
During the 2023 bull run, the Futures market played a pivotal role initially, followed by a surge in spot market activity, driving prices upward.
Following a prolonged downtrend in both spot and Futures markets from March 2024 to September, an uptick in trading volumes was observed in October 2024, subsequently pushing prices to new highs.
While Futures market demand has seen a decline lately, spot market demand is on the rise.
The spike in spot market demand indicates a cooling of speculative activities in the Futures market, with buying pressure in the spot market gaining momentum.
Consequently, Futures markets are likely to witness a cycle of liquidations and overheating, fueling the growth of BTC’s price. This movement is anticipated to attract more capital inflows into the spot market.
An increase in spot market demand often exerts upward pressure on an asset’s price through heightened buying activities.
Implications for Bitcoin
Typically, a surge in buying pressure leads to price escalation. However, Bitcoin has undergone a market correction in the last day.
Presently, Bitcoin is trading at $103825, reflecting a 2.46% decline in daily charts. Despite this pullback, there is a prevailing uptick in demand, particularly in the spot market.
The rise in spot market demand is evidenced by a decrease in the fund flow ratio, indicating a trend of users withdrawing funds from exchanges to store in private wallets.
This trend signals optimism in the market’s long-term outlook, as reduced exchange activity correlates with increased confidence among investors.
Furthermore, Bitcoin’s stock-to-flow ratio has jumped from 37k to 46.5k, suggesting a heightened scarcity in BTC.
This uptick in SFR points towards decreasing asset supply amidst rising demand. When increased demand converges with growing scarcity, it triggers a supply squeeze, propelling prices upward.
In essence, a surge in Bitcoin’s spot market demand sets the stage for further price gains driven by heightened buying pressure. Therefore, sustained demand is likely to push prices higher.
If this trend persists, BTC could aim to reclaim $106,000 and potentially reach new highs. Conversely, a continued correction might see the cryptocurrency drop to $102630 before setting off on another upwards trend.