Bitcoin Surpasses $90K: What Bulls Need to Sustain the Rally

Bitcoin trades above $90K: Here’s what bulls must do to extend the rally

Bitcoin has recently reclaimed the $90,000 mark, but onchain data shows that this gain may not be stable. Despite having a strong cost-basis foundation, the overall demand, liquidity, and futures activity appear to be lacking.

Key Takeaways:

A significant cost-basis cluster around $84,000 contains 400,000 BTC, yet demand in the spot market above this level is weak.
Liquidity indicators for BTC resemble the downturn seen in early 2022, with recent trading trends showing more losses than gains.
The most recent futures activity was largely driven by short covering rather than an influx of long positions.

BTC Spot Demand Needs to Improve Above $84,000

The recent rise in Bitcoin's price has been supported by a robust cost-basis cluster around $84,000, where over 400,000 BTC were accumulated, establishing a clear "floor" onchain.

Bitcoin Cost Basis Distribution heatmap. Source: Glassnode

However, the challenge lies in the limited spot demand above this level. Order books are thin, meaning price movements are occurring in sections with minimal buyer interaction. For Bitcoin to maintain its position above $90,000, there must be a shift from passive accumulation to active demand.

To create a healthier bullish market structure, more active buying between the $84,000 and $90,000 price range is necessary, which has not been seen following the recent dip.

Liquidity Must Stabilize as Short-Term Holders Waver

According to Glassnode, Bitcoin is currently trading below the short-term holder (STH) cost basis of $104,600, placing it in a low-liquidity scenario, reminiscent of the post-all-time high (ATH) market conditions in early 2022.

The price compression between $81,000 and $89,000, along with an average realized loss of $403 million per day, suggests that investors are opting to sell rather than capitalize on any upside. The STH Profit/Loss Ratio dropping to 0.07x indicates that demand momentum has significantly declined.

Profit/Loss ratio of STH. Source: Glassnode

For the market's trend to change, realized losses need to begin decreasing, and STH profitability must recover to above neutral levels. Without a reset in liquidity, the market risks slipping back toward the "True Market Mean," which is close to $81,000.

Related: Bitcoin bounces to seven-day highs, but can BTC break $95K on Thanksgiving?

BTC Futures Markets Require Active Buy Orders

The recent price surge to $91,000 has mainly been driven by the covering of short positions rather than the introduction of new long positions. Open interest has been declining, the cumulative volume delta remains unchanged, and the liquidation of shorts facilitated the upward movement through the $84,000, $86,000, and $90,000 thresholds.

Bitcoin’s price, open interest, and cumulative volume delta. Source: Hyblock Capital

Funding rates hovering around neutral indicate a cautious stance in derivatives trading. While excessive leverage is gradually being reduced in an orderly fashion, confidence among buyers is lacking.

A notable trend change will require rebuilding open interest on the buy side, along with consistently positive funding rates driven by genuine demand instead of merely forced short liquidations.

Related: Bearish Bitcoin mining data may be counter-signaling that encourages a spot-driven BTC rally