Bitcoin is leading the crypto market higher, breaking out of a multi-month consolidation as it looks to retest its highest weekly close on record (~$60k). Excessive optimism and leverage typically serve as telltale signs that a material sell-off awaits, but so far we aren’t seeing indications that either is out of control.

Open interest across BTC perps and futures has rebounded since September’s decline but aggregate OI is still ~20% below its prior April high. Perp funding rates remain compressed, especially when compared to Q1 2021, which tells us the latest move higher still has room to run so long as the market can maintain some momentum. The growth in futures and perps volume highlights the growing importance of derivatives for price discovery, though spot volume is also on the rise too.

Institutional capital flows have started to pick up again, possibly in anticipation of an ETF approval, but we foresee this trend continuing as we head into year end. Bitcoin dominance is ticking higher, reminiscent of its price action towards the end of 2020; BTC initially ripped higher, leaving most of the market behind, but eventually other names got their day in the sun as the risk-on sentiment drove capital rotation into higher beta plays.

Crypto assets were atop the leaderboard of best performers in Q3 even despite September’s drawdown. DeFi still remains out of favor though; since mid-May, DeFi has underperformed BTC, ETH, and total crypto market cap (excluding BTC and ETH). The market gravitated towards other sectors like L1 assets, several of which have experienced eye-popping returns this year.

Shifting gears, we still believe there are several lingering headwinds to the economic recovery that may impede policymakers’ ability to tighten policy as quickly as they – and the market – anticipate. Following one of the largest increases in global liquidity on record, policymakers have started to tamper expectations for future stimulus on both monetary and fiscal fronts, removing key sources of support and liquidity for markets. Meanwhile, considerable demand has been pulled forward; if future demand slows, the whole economic machine starts to run out of steam, which will force policymakers to step back in; government intervention is no longer the exception, it’s the rule.

If and when the narrative turns, BTC and the rest of the crypto market will be one of the biggest beneficiaries as we’ve seen in times past.

Key Technicals

Bitcoin is leading the crypto market higher, breaking out of a multi-month consolidation as it eyes $60k for the first time since mid-April. BTC looks primed for another leg higher, though we’d need to see a strong move above its previous high to confirm the sustainability of any uptrend.

Its latest breakout above its September local high (~$53,