Analysts: Bitcoin’s current rally is driven by short squeezes and leverage, while spot demand remains sluggish.

CryptoQuant analyst Sunny Mom stated in a post that Bitcoin surged from roughly $64,000 to $66,000 over two days, but the rally was driven more by short squeezes and leveraged capital rather than a meaningful recovery in spot demand. Between July 18 and 19, funding rates briefly turned negative; after short positions were squeezed, this triggered the price rebound. Concurrently, open interest rose from around $21.2 billion to a record $23 billion, signaling continued inflows of new leveraged positions. Data shows Bitcoin’s spot trading volume has been "cooling down" since April and has not yet rebounded significantly, while futures volume remains at a "neutral" level with no notable spike. Stablecoin net flows on exchanges are negative, yet total stablecoin market capitalization has not dropped sharply, indicating most funds are still on the sidelines. US Bitcoin spot ETFs have logged inflows for the second straight week, with a single-day net inflow of approximately $271 million on July 20—including $116.5 million into IBIT—reflecting partial institutional funds returning, though the scale is too small to lift overall spot volume. Sunny Mom added that the rally was kickstarted by a short squeeze, sustained by leveraged capital, with ETF funds trickling back gradually. The current market is not overheated, but the rally’s foundation remains fragile; if momentum weakens, leveraged positions could be unwound rapidly, potentially triggering a sharp market correction.