Last week was notably positive for the cryptocurrency market, particularly for Bitcoin and Ethereum, which both experienced impressive gains. Bitcoin’s price has surged to $65,000, marking an increase of over 25%, while Ethereum has increased to $3,510, up by approximately 15%. This puts Bitcoin close to its highest ever price, just below $69,000.

There are a multitude of factors supporting this upward momentum. One significant driver is the considerable net inflow into Bitcoin spot ETFs, with over $1.5 billion recorded last week, despite Grayscale experiencing notable outflows, mainly due to Genesis Trading’s recent court approval to liquidate $1.6 billion of Grayscale’s Bitcoin Trust ETF. According to our estimation, Genesis’s liquidation activities might be concluding as of early this week.

Additionally, the decreasing exchange balances for Bitcoin and Ether indicate diminishing selling pressure. For Ethereum, the increased amount of Ether being locked in decentralized applications, including EigenLayer, coupled with a surge in transactional revenue, points to heightened speculative interest in the market. This also suggests a decrease in the number of available tokens in the market.

However, the consensus on the market direction being universally upward can act as a double-edged sword. The market’s alignment with this outlook suggests that most participants are positioned for further gains, often employing significant leverage to do so. This is evidenced by near-record highs in open interest across futures markets and a strongly positive funding rate. While this could sustain a rally for longer, it also raises the risk of a sharp correction. The market might need to shed some of this excess leverage with a potential drop of at least 10% before it can continue its upward trajectory.