Bitcoin's Price Stability Above $100K Faces On-Chain Weakness

Bitcoin's price stability above $100K on the 7th of July was accompanied by a notable divergence in market sentiment. Binance Funding Rates turned negative, indicating that traders were aggressively opening short positions, betting on a potential reversal in the market. This situation opens the door to a potential short squeeze, where forced liquidations could drive prices higher. Historically, when Funding Rates dip while the price holds firm, bears tend to get burned, tipping the market structure toward bulls as long as momentum holds and shorts stay crowded.

However, the overall market sentiment was not entirely rosy. Bitcoin's on-chain activity showed signs of weakening. The Transaction Count fell to 50.3K, while Network Growth slumped to 57.6K—both multi-month lows. This contraction pointed to waning participation, likely due to cautious retail sentiment or sidelined users amid elevated prices. When fewer new users join and fewer transactions occur, it typically reflects retail caution or fatigue at high prices. Such dual declines often precede local slowdowns unless reversed quickly. The rally needs more than just strong hands; it needs new ones joining in.

Meanwhile, Bitcoin's Stock-to-Flow Ratio exploded to 458, well above recent averages. This metric reflects the relationship between current supply and annual production, and a spike suggests intensifying scarcity narratives. While this may encourage long-term holders, the gap between the perceived scarcity and actual network use widens when the latter declines. This discrepancy could lead to a disconnect between the narrative and reality, potentially affecting market sentiment.

Another warning bell came from the NVT Ratio with Circulation, which spiked to 1,527—its highest in over a year. This metric evaluates whether Bitcoin’s market cap is supported by transactional activity. A soaring NVT usually signals that valuation is outstripping usage, especially when network activity is weak. Combined with declining transaction volume and user growth, this surge may suggest Bitcoin is overvalued in its current state. Historically elevated NVT levels often precede local tops, indicating a potential correction.

Despite these mixed signals, BTC holders were not rushing to sell. The 7th of July saw a $30.14 million net exchange outflow, continuing a long-standing trend of coins moving off exchanges. This behavior implies strong investor conviction, with holders opting for custody rather than immediate selling. However, this conviction now faces a test as conflicting signals between accumulation and weakening network strength emerge. The potential for a short squeeze remains real, but without renewed transaction growth or network expansion, upside momentum may weaken.

In conclusion, while Bitcoin’s outflows and declining Funding Rates suggest bullish undercurrents, faltering on-chain activity and valuation excesses raise red flags. Traders must remain cautious as on-chain fragility could quickly shift sentiment if price support fails. The market's current optimism is tempered by the need for renewed transaction growth or network expansion to sustain the rally.