Bitcoin breaks $81,000, but retail investors are wiped out... What's behind the 54% plunge in on-chain activity?

▲ Bitcoin (BTC)/AI generated image

Bitcoin (BTC) has surpassed $81,000 for the first time in about three months, but the derivatives market still lacks strong conviction, putting the sustainability of this rally to the test.

According to crypto media outlet Cointelegraph on May 6 (local time), Bitcoin rose 7% in the past week, crossing the $81,000 mark. While Bitcoin moved towards $82,000, on-chain activity and derivatives indicators signaled that investor participation has not fully recovered.

The Bitcoin 2-month futures basis remained at an annualized premium of 1% compared to the spot market. Typically, futures sellers demand a 4-8% premium to reflect the cost of capital. This indicator is well below the neutral zone, showing that the cautious sentiment formed since late January, when Bitcoin was trading at $90,000, has not yet dissipated.

Strong optimism was also not observed in the options market. Deribit's Bitcoin 30-day option delta skew approached the 6% neutral benchmark but still maintained a weak bearish trend. While whales and market makers do not appear to be strongly concerned about a short-term sharp decline, buying conviction has also stalled. Brent crude remaining near $110 per barrel and US inflation expectations nearing a 10-year high of 2.5% also weighed on investor sentiment.

On-chain indicators suggested a slowdown in retail investor demand. The daily Bitcoin network transfer volume plummeted by 54% from three months ago to $4.1 billion, and the number of transfers approached its lowest level in over five years. Cointelegraph explained that while Bitcoin's price is not solely determined by on-chain activity, this indicator serves as a proxy for gauging public interest and adoption levels.

However, US-listed Bitcoin spot ETFs saw net inflows of $1.16 billion from Friday to Monday, indicating a strengthening trend in institutional demand. Cointelegraph assessed that the lack of leveraged buying demand in the derivatives market could actually serve as a catalyst for further upside. The analysis suggests that if Bitcoin's price rises further, sellers who have taken short positions would need to close their positions to cut losses, and this buying pressure could boost additional upward momentum.

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