Important points:
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A resolution to shut down the U.S. government could trigger a short squeeze, but traders remain skeptical that it alone will sustain Bitcoin’s rally above $112,000.
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Investors are becoming more cautious as AI valuations and weak consumer returns weigh on risk appetite, limiting confidence in Bitcoin’s upside potential.
Bitcoin (BTC) regained the $106,000 level on Monday as the US government shutdown appears to be nearing an end. Analysts had warned that a prolonged suspension of funding could dampen consumption further, especially after thousands of flights were cancelled. As the tech-heavy Nasdaq index rose 1.5%, the crypto market followed suit.
Traders are currently assessing whether Bitcoin’s recent gains can be sustained amid weak demand for bullish positions in BTC derivatives.
Two-month BTC futures are currently trading at a 4% premium to the spot market, which is below the 5% threshold considered neutral. The lack of appetite for leveraged long positions is likely a reflection of the $270 million liquidation that occurred between Tuesday and Wednesday after Bitcoin lost support at $107,000. Buyers may need further confirmation that the economy is indeed entering a recession before re-entering the market.
According to Yahoo Finance, the US Federal Aviation Administration was forced to reduce domestic flights and airlines canceled more than 5,000 flights. Some air traffic controllers have been without pay for nearly a month and have stopped reporting for duty. Despite an unusual Sunday session in the U.S. Senate, there was still no guarantee that the standoff would be resolved. A breakthrough in the government shutdown could spark optimism among Bitcoin traders.
The U.S. Supreme Court has questioned President Donald Trump’s authority to set certain import tariffs. Uncertainty surrounding both the duration of the ongoing government shutdown and the sustainability of additional import duties add further risks.
Bitcoin reflects broader market anxiety over US economic downturn
While the short-term economic impact remains uncertain, the overall effect has so far been supportive of public finances by slowing spending and generating additional revenue. Still, Bitcoin is not immune to broader market concerns about weakness in the US economy.
BTC options skew (put calls) fell to 6% on Monday, marking the first time in November that it marked the border from neutral to bear market. When traders expect a sharp correction, this indicator typically jumps by more than 10%, as put (sell) options trade at a premium. It remains unclear what will restore traders’ confidence in the potential for a $120,000 rally, but the current setup clearly signals skepticism.
Unlike monthly BTC futures, perpetual contracts typically stay close to Bitcoin’s spot price with adjustable funding rates. These contracts are a favorite tool for retail traders and are important in assessing whether sentiment has improved following Bitcoin’s recent retest of the $106,000 level.
Under balanced conditions, funding rates should range from 6% to 12% to reflect both risk and opportunity costs. The current 5% interest rate is somewhat problematic and shows a clear lack of interest from retail traders, even after Bitcoin tested the $100,000 support on Friday. However, the lack of demand for leveraged bullish positions should not be mistaken for outright bearish sentiment.
Related: Institutional investors buy as US government shutdown ends, hoping for ETF ‘Floodgate’
Investors are becoming more risk-averse due to concerns about the artificial intelligence sector’s overvaluation and weak consumer-focused corporate earnings. An eventual lifting of the government shutdown could ease tensions and push Bitcoin above $112,000, potentially triggering a short squeeze. But for now, betting on a bullish breakout solely on a shutdown solution seems too optimistic.
This article is for general informational purposes only and is not intended to be, and should not be taken as, legal or investment advice. The views, ideas, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.