Key takeaways:

• Spot market demand via US-listed ETFs and strategic BTC purchases supports Bitcoin’s bullish momentum.

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• Low leverage among Bitcoin bulls reduces the risk of cascading liquidations even if prices drop another 5%.

• Rising inflation concerns are negatively impacting fixed income returns, paving the way for an eventual gold-to-bitcoin swap.

Bitcoin (BTC) saw a 7% correction after Tuesday’s flirtation with the $76,000 level. The deterioration followed a decline in the US stock market following a acute rise in oil prices following Israel’s attack on Iran’s largest gas processing plant and an augment in the US producer price index above expectations.

Despite the recent losses, there is no indication that Bitcoin’s bullish momentum has waned, given the performance of the S&P 500 and U.S. Treasuries amid deteriorating macroeconomic conditions. Additionally, Bitcoin bulls avoided excessive leverage, reducing the risk of cascading liquidations.

The S&P 500 index was trading just 4% below its all-time high on Wednesday, despite recent delicate U.S. labor market data and continued pressure from the ongoing war in Iran. The United States reported jobless claims continuing at a relatively stable 1.85 million for the week ending March 7. On Wednesday, the United States announced that wholesale prices rose 3.4% in February from a year earlier, the largest augment in 12 months.

As oil prices rose above $98, investors became more convinced that the US Federal Reserve would not be able to ease monetary policy throughout 2026. CME FedWatch tool showed that, according to implied rates on futures markets, the chances of keeping interest rates steady through September fell to 42% on Wednesday from 89% a month earlier.

Bitcoin under pressure as prolonged risk of war increases investor risk aversion

Tough inflation and the prospect of a prolonged war reduced the chances of expansion-oriented economic stimulus, causing investors to avoid risk. But there is no reason to believe that investors expect a crash anytime soon, at least judging by how interest rates are priced in relative to inflation expectations.

On Wednesday, the 2-year Treasury yield was 3.71%, while the Cleveland Fed’s expected 2-year Treasury inflation was 2.27%, giving an adjusted yield of 1.44%. During periods of extreme fear, greater demand for government bonds typically results in near-zero or negative returns. On the other hand, lack of confidence in US monetary policy could push the rate to 2.5% or higher.

Even if Bitcoin falls another 5% in the coming weeks, there is no indication of excessive leverage demand from bulls, meaning there is a low risk of cascading liquidations. The recent bullish momentum has been supported by the spot market, particularly through accumulation of US-listed Bitcoin cash ETFs and aggressive purchasing activity by Strategy (MSTR).

CoinGlass estimates that $450 million worth of leveraged long Bitcoin futures contracts would be involuntarily terminated at $68,000, which is less than 1% of the current total open interest of $49 billion. The Bitcoin perpetual futures funding rate confirms that bears are becoming overconfident as demand for brief leverage increases.

Related: 74% of institutions expect cryptocurrency prices to augment within 12 months – survey

A negative funding rate means that brief traders pay to keep their positions open. More importantly, the indicator remained below the neutral range of 6% to 12% even as Bitcoin price rose above $76,000, which strengthens the thesis of maintaining spot demand dynamics rather than speculation using derivatives markets.

Gold prices fell to $4,900 on Wednesday, showing signs of exhaustion after hovering above $4,800 for four weeks. Gold’s potential rotation could be the reason for Bitcoin’s sustained rally, especially as inflation concerns negatively impact expected returns on fixed-income assets. Overall, there is little to suggest that Bitcoin’s current bullish momentum has abated.