Every Profitable Bitcoin Trader Is Watching These TWO data points

👇1-10) A moment of truth is near. Bitcoin has rallied from 60,000 to 67,500 in four days, almost reaching our line in the sand. However, the rally occurred within four one-hour time windows and appeared driven by several blocks of larger orders instead of gradual buying during those four days.

👇2-10) The real test is not our 68,300 ‘line-in-the-sand’ level, which symbolizes the previous high. After retesting, this previous bull market’s all-time high level, while previously rejected, caused a parabolic move in Bitcoin in the last cycles.

👇3-10) As crypto futures traders have turned cautious, the real test is for the spot market to drive this rally higher. Although the funding rate was elevated during the last couple of weeks, signaling that futures traders were willing to deploy excessive leverage, it has turned negative for the first time since mid-October 2023. But there is a lot more to say about this, as we explain below.

Bitcoin’s Funding Rate Has Turned Negative

👇4-10) Back then, the Bitcoin rally did not stop at $28,000, as the negative funding rate indicated; somewhat, it surprised most traders and kept going as there was capacity to deploy more capital in the run-up to the ETF approvals. Futures open interest was relatively low at $9bn vs. $17.3bn today—down from a peak of $21.2bn.

👇5-10) This $4bn open interest decline, or unwinding from futures traders, has undoubtedly contributed to the funding rate turning negative. It also indicates that they could rebuild their futures positions by lifting the open interest amount higher. But it could also signal that—in their mind—the easy money of this rally has been made.

👇6-10) The situation is similar for Ethereum and signals a broad de-risking among the faster futures traders. Previously, we have explained that low trading volumes would signal a lower funding rate, which could also mean lower ETF inflows from arbitrage-seeking traders.

👇7-10) Although ETF flows have been net positive, $60m, on each of the last two days, they have primarily disappointed since early March. Most have given up on this ‘indicator’, and some have even used our analysis that the Bitcoin price is NOT being driven during US trading hours to justify the unimportance of the ETF flows—even though they set the sentiment in February for higher prices.

👇8-10) One of the big demand drivers for Bitcoin (and Ethereum) has been from staking/re-staking protocols, with Ethena alone having deployed $825m in Bitcoin and $805m in Ethereum. This has been $1.6bn of crypto demand alone. However, as the funding rate for BTC and ETH dropped to zero (or lower), Ethena’s TVL stopped growing at $2.4bn, and their BTC and ETH buying dried up.

Decoding the $+44.4bn of crypto inflow since mid-January

👇9-10) Despite the weak ETF inflows, the net inflows into crypto have NOT stopped, mainly because the stablecoin issuers (Tether and Circle) have continued to convert fiat into crypto at an accelerated pace. Crypto has seen $44.4bn of net inflows since mid-January, which includes $16.2bn through Tether, $12.2bn through the Bitcoin ETFs, $8.9bn through Circle, and approximately $7.1bn through (Bitcoin) futures. Besides the funding rate, every Bitcoin trader will be watching stablecoin inflows.

👇10-10) Stablecoin issuance has been twice as strong as ETF flows, and while ETF inflows have likely become saturated, stablecoin issuance is challenging to predict. However, we can point towards a negative funding rate, which could indicate that crypto traders perceive the opportunity set as low - at least for the time being, and therefore, demand for fiat-to-crypto conversion could slow down, too. But we can not say this with certainty, and thus, a moment of truth is near where either the bullish or bearish side takes the upper hand.