Bitcoin – Why the $2B Open Interest jump could be a bearish start for BTC

Key Takeaways

What triggered Bitcoin’s recent surge to $105k?

A 1.62% intraday move fueled by $80 billion flowing into BTC, showing rebuilding risk appetite and macro liquidity support from a falling SOFR.

Is BTC poised for a sustained bull run?

Key resistance levels need follow-through, and rising leverage could create volatility, making the macro tailwind a potential double-edged sword.

Bitcoin [BTC] investors are showing renewed bullish positioning.

After a 1.62% intraday surge, BTC broke the $105k resistance, following a week-long chop – A sign that risk appetite may be rebuilding. In fact, $80 billion has flowed into BTC, raising its market cap to $2.12 trillion.

However, this momentum does not yet confirm a “sustained” bull run. 

The logic is simple – BTC must reclaim key resistance levels with follow-through. Otherwise, a breakdown could occur. Against this backdrop, could the latest macro tailwind be a double-edged sword for Bitcoin?

SOFR drop sparks frenzy as leverage gets cheap

As market cycles evolve, liquidity is playing a larger role in driving BTC.

Recently, official data from the Federal Reserve Bank of New York triggered a market reaction after the Secured Overnight Financing Rate (SOFR) dropped to a multi-year low of 3.92%. 

For context, this rate reflects the cost for banks to borrow cash overnight. A drop means banks pay less, which translates into cheaper capital. Hence, BTC reclaiming the $105k-level followed this surge in available liquidity.

Source: Federal Reserve Bank of New York

Backing this up, the impact was also reflected in market sentiment. 

As investor risk appetite surged, the Fear & Greed Index rose by 4 points, indicating that investors are positioning bullishly on this news. Moreover, a further 10-point shift would return sentiment to the neutral zone.

However, Bitcoin remains far from confirming a bull run as key catalysts are yet to flip into bid support. In this context, with the SOFR falling, could a hike in leverage become a major obstacle for BTC’s next leg up?

Bitcoin’s market dynamics point to potential volatility

An interesting Bitcoin setup is developing.

As the price has been grinding higher over the past couple of days, Open Interest (OI) has concurrently increased, adding roughly $2 billion in the last 24 hours alone. This has pushed the total OI back to the $70 billion threshold.

However, during the same period, Funding Rates declined. BTC’s aggregate OI-weighted funding rate fell to 0.062%, indicating that these gains were not driven by new longs, but by bears shorting their positions.

Source: X

However, with the SOFR continuing to fall, this dynamic could shift quickly. 

Too much leverage has historically been a big warning sign for Bitcoin, like in mid-October when $20 billion was wiped out in the derivatives market. So, if cheap leverage keeps building, it could push BTC into sharp moves.

Against this backdrop, the $2 billion jump in OI might be the bearish start, especially as bids stay cautious. If this continues, the SOFR drop might push traders to take bigger positions, putting Bitcoin in a volatile spot.