Bitcoin’s ability to extend its August rally has come under a fresh test as analysts have pointed to sustained spot ETF demand as a key requirement for overcoming rising expectations of a September Federal Reserve rate hike.
According to Bitfinex analysts in an Aug. 31 market report shared with crypto.news, Bitcoin’s latest advance has relied increasingly on spot demand rather than excessive leverage, leaving the market in a stronger position to absorb selling even as U.S. monetary conditions become less supportive.
According to data from crypto.news, Bitcoin (BTC) price was trading around $78,700 at the time of writing, down about 0.4% over the past 24 hours. The asset briefly climbed above $81,000 last week before falling to a low of $76,857 after Federal Reserve Chair Kevin Warsh used his Jackson Hole address to signal that interest rates may still need to rise.
The decline interrupted a rally that had carried Bitcoin from below $65,000 in mid-August to above $80,000. As previously covered by crypto.news, Bitcoin gained about 24% during the previous week as Treasury buybacks, ETF demand, and forced short covering helped fuel the recovery.
Bitfinex analysts said the derivatives market has not shown the kind of rapid leverage build-up that typically accompanies an overheated rally. Bitcoin open interest stood at $55.6 billion, more than 20% above its level at the start of August, but the increase has been gradual while basis levels have remained relatively low.
“We are in a market driven by spot buying and, notwithstanding large short liquidations, open interest has only gradually increased, while basis has remained relatively low and at healthy levels historically,” the analysts said.
Holding $77,100, which Bitfinex identified as an important lower-timeframe support level, alongside continued spot buying would indicate that the market remains relatively balanced, according to the report.
ETF flows provide another measure of whether that demand can continue.
U.S. spot Bitcoin ETFs absorbed about $3.04 billion during nine consecutive positive sessions from Aug. 17 through Aug. 27, according to Bitfinex. Friday then produced the first net outflow in 10 sessions, with investors withdrawing $201.9 million as Bitcoin reversed from above $81,000.
Despite Friday’s redemptions, the funds still finished the week with $924.5 million in net inflows, while inflows across the previous two weeks reached about $2.8 billion.
BlackRock’s IBIT accounted for only $33.4 million of Friday’s withdrawals after collecting roughly $2.3 billion during the preceding nine sessions. ARKB and BITB together recorded $164.6 million in outflows.
Institutional demand has also been absorbing Bitcoin sold by larger holders, Bitfinex said. Whale addresses holding between 1,000 and 10,000 BTC have reduced their balances by 50,500 BTC since the end of June, while institutional custodial holdings associated with exchanges and ETF platforms increased by 59,100 BTC.
During the latest August advance alone, custodial balances rose by 31,500 BTC, a move the analysts said closely tracked ETF inflows.
“While whales took profits during the rally, institutional demand absorbed that supply, indicating that assets moving into these regulated vehicles may be less prone to sudden liquidation on the basis of short-term macroeconomic news.”
Jeff Ko, chief analyst at CoinEx, told crypto.news that part of Bitcoin’s August rally came from Treasury buybacks pushing yields and the dollar lower at the same time that traders had built large short positions.
Ko said the mechanical part of the resulting squeeze has now “largely played out,” leaving spot demand as a more important factor around $80,000.
“Treasury buybacks pushed yields and the dollar lower, and that impulse collided with crowded short positioning to produce the squeeze,” Ko said. “What matters from here is whether spot buyers keep absorbing supply around $80K.”
The Treasury catalyst had already produced a sharp response earlier in August. On Aug. 19, the department announced that it would at least double the maximum size of liquidity-support buybacks for 10-to-20-year and 20-to-30-year nominal coupon securities from $2 billion to at least $4 billion per operation from Sept. 9 through Nov. 4.
The change helped compress long-term yields as Bitcoin surged. An Aug. 20 analysis of the buybacks found that BTC jumped 8.2% from an intraday low of $64,100 to $69,500 within 12 hours of the Treasury announcement, while $1.44 billion in short positions were liquidated.
Ko now sees $80,000–$83,000 as more than a technical resistance area because the zone could show whether new investment can replace the buying pressure previously created by forced short covering.
“It is a major supply zone, and the point at which the rally stops being a short squeeze and becomes a test of real capital allocation.”
Ether could provide another signal. Ko said ETH had traded near $2,490 heading into Jackson Hole but subsequently lagged Bitcoin on price. If Treasury yields and the dollar remain elevated while Ether starts outperforming Bitcoin on both price and investment flows, he would view the move as evidence of stronger crypto risk appetite.
Bitfinex also pointed to Ether ETFs as a possible gauge of demand. U.S. spot Ether products took in $815.7 million last week and extended their positive run to 10 sessions, according to the firm. Nearly 12.3% of cumulative Ether ETF inflows since launch arrived during August, while demand adjusted for the relative size of the assets was roughly four times as intense as Bitcoin ETF demand during the past week.
The pressure on Bitcoin now comes from a less favorable interest-rate outlook.
Warsh’s Jackson Hole remarks pushed the market-implied probability of a September rate increase to about 57%, according to Bitfinex. Ko similarly said CME-implied odds had risen from 39.9% on Aug. 21 to 57% following the speech, while the two-year Treasury yield moved to around 4.31% and the dollar returned toward a two-week high.
Bitfinex analysts said persistent inflation remains one of the main constraints on easier monetary policy. Headline Personal Consumption Expenditures inflation stood at 3.7%, with core inflation at 3.3%, while private domestic demand expanded at a 4.2% annualized pace during the second quarter.
Jeff Mei, chief operating officer of BTSE, told crypto.news that Warsh’s speech had raised the hurdle for Bitcoin because higher interest rates could reduce the amount of liquidity available for crypto assets.
“For a sustained rally, we need a few things to happen. First, ETF demand has to stay strong across all ETF products, and not just BlackRock’s IBIT ETF. Second, we need better inflation data for the Fed to back off and keep rates steady.”
Mei also cautioned that the boost associated with Treasury buybacks could fade quickly.
Earlier in August, Bitcoin broke above $76,000 as ETF inflows accelerated alongside improving U.S. liquidity conditions. Spot Bitcoin ETFs took in $606 million on Aug. 20 alone, extending a run of institutional demand that accompanied the recovery from the mid-August lows.
Attention now turns to a run of U.S. economic releases that could alter expectations before the Federal Reserve meets in September.
Ko identified Friday’s August payroll report as the most important immediate event and the final jobs report before the FOMC decision. July payrolls fell by 23,000 against an 80,000 consensus estimate, while May and June were revised lower by a combined 103,000 jobs, according to figures cited by Ko. The unemployment rate currently stands at 4.1%.
Before payrolls, ISM Manufacturing and JOLTS data are due Tuesday, followed by ADP employment figures and the Federal Reserve’s Beige Book on Wednesday and ISM Services on Thursday. Bitfinex analysts also identified the August labor-market and inflation releases as the next major tests for rate expectations.
The August inflation report is scheduled for Sept. 11, putting another major data point immediately before the Sept. 15–16 FOMC meeting.
Ko also pointed to the CLARITY Act as a crypto-specific U.S. catalyst, with a Senate procedural vote currently scheduled for Sept. 15. In his view, the vote represents one of the largest asset-specific events on the September calendar, while the Fed meeting will determine the monetary backdrop facing Bitcoin and other risk assets.
For price, Mei sees $87,000 as the next level that would materially strengthen the bullish case after Bitcoin clears the nearer resistance areas.
“If we break the $87k mark and hold, $100K becomes the real target, and we could be looking at a bull market.”
