Bitcoin Rally Driven by 70% Leveraged Demand

Bitcoin (BTC) has recently reached new all-time highs, with the latest peak at nearly $119,000. While institutional demand and whale movements are evident drivers of this rally, analysts have identified another significant contributor: leveraged traders. According to market insights firm Glassnode, leveraged demand is playing a more substantial role in this rally than spot investors.

Glassnode's analysis reveals that Bitcoin’s spot Cumulative Volume Delta (CVD) has been declining for weeks. CVD is a metric that analyzes investor sentiment by indicating whether aggressive buyers or sellers are dominating the market. It measures trading activity by comparing buying and selling volume over a period. Over the past weeks, Bitcoin’s spot CVD has shown rare buy-side spikes, with the latest occurring on July 9. In contrast, the futures CVD has been more reactive, recording frequent buy-side spikes, which indicates that traders have been aggressively buying BTC.

Since BTC reached $112,000, spot traders have been selling, while futures investors have been buying. Funding for the spot market has remained low and even turned negative at times. This dynamic suggests that the current bitcoin rally is more driven by leverage than by spot demand. Futures traders have been more active in buying, but there has been little confirmation from spot investors. Glassnode noted that low funding indicates that positioning is not yet crowded, but this also points to a structurally fragile setup that could improve if spot interest returns.

Glassnode’s analysis indicates that there is no strong structural backing to support this rally. However, the Bitcoin market has not shown any signs of overheating, suggesting there is still room for additional growth. Metrics such as the Unspent Transaction Output (UTXO) and Short-term holder Spent Output Profit Ratio (SOPR) remain steady. Other indicators, like the Market Value to Realized Value (MVRV) and Miner Position Index (MPI), also suggest that sell-side activity is muted. These signals indicate that investors are cautiously optimistic and not eager to offload their assets.

As the market awaits Bitcoin’s next move, there has been a surge in open interest, with long positions dominating. This follows the liquidation of shorts, with liquidations running close to $1 billion. The rally has been characterized by a decline in on-chain transactions and minimal miner activity, suggesting that external factors, such as institutional investment, may be driving the rally more than internal factors like increased network usage. The decline in on-chain transactions and miner activity may also indicate that the rally is not being driven by retail investors, who are typically more active on the network.

In summary, the Bitcoin rally appears to be driven by leveraged demand rather than spot market demand. The approval of spot Bitcoin ETFs has been a major catalyst for the rally, and the continued participation of long-term holders has been crucial for sustaining the upward momentum. However, the decline in on-chain transactions and miner activity suggests that the rally may be driven more by external factors, such as institutional investment, rather than internal factors, such as increased usage of the Bitcoin network.