Bitcoin Demand Shock Explained: Buying Pressure, Open Interest, Funding Rates

The current situation for Bitcoin (BTC) reveals a pronounced demand shock, with prices steady at around $71,000. Demand from institutional investors, especially through spot Bitcoin Exchange-Traded Funds (ETFs), fuels this increase.

Spot Bitcoin ETFs have experienced unprecedented net inflows. For the past 18 days, they have recorded continuous positive inflows, the longest streak since their inception.

Is Bitcoin Awaiting Explosive Price Growth?

Among Bitcoin ETFs, BlackRock’s iShares Bitcoin Trust (IBIT) is particularly noteworthy. It accumulated $350 million on Thursday, the highest in the last two trading months. In total, IBIT has acquired nearly $780 million worth of Bitcoin over the past three trading days.

This week alone, Bitcoin ETFs collectively saw inflows exceeding $1.7 billion. Significantly, June 4 marked the highest daily inflow of the week, with spot Bitcoin ETFs collectively attracting $886 million.

“That’s the highest weekly inflow since launch (+$1.7 billion) – and we still have one day left,” crypto analyst Miles Deutscher said.

Additionally, the discrepancy between Bitcoin miners’ output and ETF purchases highlights the shock in demand. Crypto investor Adam Back highlighted that while Bitcoin miners produced just 450 BTC on June 4, ETFs bought a staggering 12,508 BTC.

Read more: Who Owns the Most Bitcoin in 2024?

Despite these bullish activities, the Bitcoin funding rate remains neutral. This rate is crucial for maintaining market equilibrium and is a fee exchanged between traders of perpetual future contracts. It aligns the contract’s price with the Bitcoin spot price.

Despite high Bitcoin prices, a neutral funding rate suggests a balanced market sentiment with a reduced risk of sudden downturns.

“Last time we were here (in March/April) – it was a sea of orange/red (high funding rate),” Deutscher added.

Furthermore, the open interest in the CME (Chicago Mercantile Exchange) Group is rising, approaching all-time highs once again. Analyst Vetle Lunde from K33 Research reports that this increase is driven by more direct participant exposure and solid inflows into leveraged ETFs.

Open interest, which represents the total outstanding derivative contracts not yet settled, has reached an 11-week high, surpassing 75,000 BTC. This measure indicates growing market liquidity, and mirrors heightened market sentiment and engagement.

Moreover, according to CryptoQuant data, the supply of Bitcoin on crypto exchanges is at a one-year low.

“Right on time for a second wave of ETF Flows. Demand shock + Inelastic supply,” Bitcoin investor, Thomas Fahrer said.

Read more: Bitcoin (BTC) Price Prediction 2024/2025/2030

Bitcoin Exchange Reserve. Source: CryptoQuant

This traditional economic scenario of high demand coupled with low supply suggests potential explosive price growth for Bitcoin. The convergence of increasing institutional demand, balanced market mechanisms via neutral funding rates, and a tightening Bitcoin supply outline a promising outlook for its near-term valuation trajectory.

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