[DigitalToday reporter Yoonseo Lee (이윤서)] Bitcoin has risen back above $80,000, but algorithmic trading firm Wintermute does not view the advance as a healthy rally.

Cryptopolitan, a blockchain media outlet, reported on May 12 that Wintermute assessed the recent Bitcoin rise as largely a short squeeze triggered by the liquidation of short positions in derivatives markets, rather than expanding spot buying.

The key is the quality of demand. Bitcoin broke above $80,000 for the first time since January, but Wintermute said prices in this zone are highly fragile. Over the past month, Bitcoin futures open interest rose by about $10 billion, to $58 billion from $48 billion. By contrast, spot trading volume fell to its lowest level in 2 years, Binance News reported, citing NS3.AI data.

As Bitcoin neared $70,000, the market increased short positions on expectations the uptrend would break. But as prices rose further, short positions were liquidated. Buying surged in the process, pushing Bitcoin above $80,000 and up to around $83,000, above the 200-day moving average.

Wintermute also pointed to perpetual futures funding rates that remain below normal levels. That indicates there is still a chance of another round of forced liquidations. Wintermute said short covering driven by liquidations should be distinguished from conviction buying to actually hold spot Bitcoin. It explained: "Without spot-led demand, this rally could reverse sharply."

It also presented relatively positive signals for the medium-to-long-term trend. A total of $623 million has recently flowed into spot Bitcoin exchange-traded funds. Of that, Morgan Stanley's spot Bitcoin ETF drew $194 million in its first month with no net outflows. Bitcoin held on cryptocurrency exchanges also fell to its lowest level in 7 years.

The issue is that such long-term indicators do not immediately resolve the instability in the short-term price structure. Wintermute said the current rise is built on shifts in derivatives positions, which is not enough to offset short-term risks. It said a further rise to $85,000 is possible, but buying at current levels offers an unattractive risk-reward profile.

Short-term variables also remain. The first is the U.S. consumer price index (CPI). Wintermute said a negative inflation reading could revive inflation concerns and weigh on cryptocurrency prices broadly. April CPI released that day rose 3.8 percent year-on-year, slightly above market expectations.

The second is uncertainty over the selection of the next chair of the U.S. Federal Reserve. The nomination process for Kevin Warsh as Fed chair could raise monetary policy uncertainty and increase market volatility.

Bitcoin's relative strength index (RSI) is also rapidly approaching overbought territory, raising the likelihood of a short-term correction if additional spot-market demand does not follow after the initial short squeeze ends.

Ultimately, the next turning point hinges on whether spot buying actually follows through. ETF inflows and falling exchange balances remain long-term supportive factors, but Wintermute views the current rally as resting on a weak foundation. It said Bitcoin's strength will likely need confirmation of spot-led demand rather than derivatives liquidations.

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