Strong Investor Demand Meets Weak Bitcoin Futures as Price Slumps

Bitcoin (BTC) failed to break beyond $71,000 on Thursday, partially driven by the decline in the US stock market, with BTC funding rates dropping deeper into negative territory.

Key takeaways:

• Bitcoin bears show high conviction as funding rates drop, but steady institutional buying keeps sellers in check.

• Gold and government bond yields are rising, making it harder for Bitcoin to compete as a top-tier store of value.

Bitcoin futures imply moderate market stress

Traders fear that a prolonged war in Iran could cause havoc in the energy markets, negatively impacting the already weakened global economic prospects.

Bitcoin’s perpetual futures displayed signs of moderate stress, signaling a potential $66,000 retest. However, institutional inflows show increased demand, reducing the odds of a major Bitcoin price correction.

Bitcoin perpetual futures annualized funding rate. Source: Laevitas.ch

The Bitcoin perpetual futures annualized funding rate dropped to -7% on Thursday, meaning shorts (sellers) were the ones paying to keep their positions open.

The growing conviction from bears is concerning, but the lack of demand from longs (buyers) should come as no surprise, given that Bitcoin is 45% below its all-time high.

Bitcoin’s derivatives remain muted

The tech-heavy Nasdaq 100 index traded merely 6% below its all-time high on Thursday. Even the US-listed small capitalization Russell 2000 Index stood 9% from its highest mark ever.

Hence, the worsening economic conditions or fear of contagion due to logistics issues in the Middle East can hardly be used to justify Bitcoin’s sluggishness.

The latest US jobless data released on Thursday revealed 1.85 million continuing claims in the week ended on Feb. 28, slightly above consensus, according to Yahoo Finance.

US President Donald Trump vowed to “finish the job” in Iran, a war that further weakens the government’s fiscal debt conditions and does not help labor market prospects.

Bitcoin 2-month futures annualized premium (basis rate). Source: Laevitas.ch

The Bitcoin monthly futures premium relative to regular spot markets has stood below the neutral 5% threshold for the past couple of weeks. But despite being far from bullish, there is no evidence that Bitcoin derivatives presently signal continued stress.

This lack of interest is a reflection of Bitcoin’s failure to rally despite the anticipation of monetary expansion.

Rising institutional demand may push BTC above $75,000

Gold strength above $5,100 undermines Bitcoin’s store of value premise, especially as yields on US bonds rose sharply in March, meaning traders are demanding higher returns to hold those instruments.

US 5-year Treasury yield (left) vs. gold/USD (right). Source: TradingView

Yields on the 5-year US Treasuries jumped to 3.80% on Thursday after dipping below 3.50% in late February. Hence, investors exited fixed-income investments.

Related: Bitcoin catching up to gold hints at an ‘opportunity within risk’

The US Federal Reserve is in a tough spot since lowering interest rates is needed to boost the job market and reduce risks in credit markets. But rising oil prices create sustained upward pressure on inflation.

Presently, Bitcoin’s hard-coded and transparent monetary policy is not being valued as a safe haven, but this could change as institutional demand picks up.

Additionally, a single Bitcoin derivatives metric (funding rates) should not be interpreted as a driver for a sharp price correction.

Particularly, amid a sequence of Bitcoin spot exchange-traded fund (ETF) net inflows and Strategy (MSTR US) yield products, resulting in accelerated Bitcoin accumulation. Sellers below $75,000 will eventually run out of coins, paving the way for a sustained bull run.

As Cointelegraph reported, Bitcoin bulls will likely need to wait until after March for a chance to break the $78,000 resistance

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