Bitcoin’s latest surge in price has been largely driven by strong spot buying activity, despite leverage in the futures market hitting new all-time highs. A recent report from Glassnode highlights the growing demand from retail investors, with spot buying on platforms like Coinbase playing a central role in Bitcoin’s recent price movements.

On November 10, the “open interest to USDT reserve ratio” for Bitcoin perpetual contracts hit an all-time high of 0.593, indicating that traders are becoming more leveraged than ever before. This measure, tracked by CryptoQuant, shows a dramatic increase in the use of leverage, with current levels 2.7 times higher than when the ratio first entered a dangerous zone earlier this year in February.

Leverage at All-Time Highs Amid Record Spot Buying

Despite this surge in leverage, the Bitcoin market has seen a significant uptick in spot buying, which is outpacing futures activity. According to the data, the daily Cumulative Volume Delta (CVD) for Bitcoin’s spot market on Coinbase reached $143 million, nearing the $152 million peak seen in March. This indicates strong demand from buyers in the spot market, who are increasingly driving Bitcoin’s price gains.

While Bitcoin did hit a new all-time high of $93,523.65 in the hours following the news, it was quickly followed by a 5% correction, bringing its price to around $88,701.71 at the time of writing. This short-term correction, however, has not been attributed to any significant liquidation or unwinding of leverage, as the volume of liquidations has remained relatively low — down 5% in the past 24 hours, totaling nearly $872 million according to Coinglass.

The Role of Retail Investors and Spot ETFs

Bitcoin’s recent rally is also fueled by a resurgence in retail investor activity. CryptoQuant analyst Martuun noted that retail demand has hit a 52-month high in the past month, with increasing retail interest reflected in the surge in Dogecoin’s price, high funding rates, and a spike in Google searches for Bitcoin. This indicates that retail investors are driving a substantial portion of Bitcoin’s recent price action.

In addition to strong spot demand on exchanges like Coinbase, Bitcoin spot ETFs are also seeing significant inflows. Over the past 30 days, assets under management (AUM) in Bitcoin spot ETFs surged by $8.8 billion, outpacing the $6.9 billion increase in CME futures open interest. This shift from futures to spot-driven ETFs reflects a broader trend in investor sentiment, with more investors seeking direct exposure to Bitcoin rather than speculative futures contracts.

Leverage Poses Risks, but Long-Term Outlook Remains Positive

Despite the strong spot buying activity, the growing leverage in the futures market presents risks. CryptoQuant’s CEO, Ki Young Ju, warned that Bitcoin’s current rally could face a painful pullback once the leverage begins to unwind. However, he remains optimistic about Bitcoin’s long-term prospects, emphasizing that the market’s fundamentals are still strong despite the short-term risks posed by overleveraging.

While perpetual futures contracts have seen a recent premium peak of $1.59 million per hour, they are still below the levels seen in March 2024, suggesting that spot buying — not leverage — is the primary driver of Bitcoin’s current rally.

Conclusion: Strong Spot Demand, Risks from Leverage

Bitcoin’s recent price action is being primarily driven by strong spot buying, which indicates robust demand from investors who view Bitcoin as an increasingly valuable asset. However, the rise in leverage, particularly in perpetual futures contracts, presents a risk of a potential price pullback once leveraged positions are unwound.

As long as spot demand remains strong, Bitcoin’s long-term prospects appear bullish, but traders should remain mindful of the growing risks posed by overleveraging in the futures market. The market’s current momentum is a delicate balance between healthy demand and the risks of excessive speculation, and Bitcoin’s price action in the coming weeks will depend on how these forces play out.