Has Bitcoin breaking through 66k been a “leverage illusion”? CryptoQuant analyst warns: spot buy-side demand hasn’t caught up

Bitcoin (BTC) has recently surged past the $66k mark, but behind this rally, is it real spot buying power—or a leveraged mirage from the derivatives market? CryptoQuant analyst Sunny Mom, in his latest post, said that on-chain and exchange data show that this rebound has mainly been driven by a short squeeze and leveraged capital, while spot demand remains weak. He cautioned that before spot buying truly heats up, investors should not blindly chase the rally.
(Background: Bitcoin intraday hit the “66,956” two-week high! $204 million liquidations, and the fear index rose back to 33 and held steady at 33)
(Background: Galaxy Digital launched the “Bitcoin Quantum-Ready Program,” pledging $5 million to fund quantum cryptography development)

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• Short squeeze ignites the rally, leverage fans the flames
• Spot buying is sluggish, with capital still watching from the sidelines
• ETF inflows are slow; analysts urge caution against sudden sell-off risk

In just two days, Bitcoin (BTC) climbed from around $64k and successfully broke above the key psychological level of $66k. However, this seemingly strong rally has raised concerns among market experts. On July 22, Taipei time, CryptoQuant analyst Sunny Mom published a special article to explore whether this is “real capital returning” or “another leverage-driven carnival?”

Short squeeze ignites the rally, leverage fans the flames

Sunny Mom delved into derivatives market data and pointed out that the trigger behind this upswing was a classic “Short Squeeze.” From July 18 to 19, as bearish positions were liquidated, the funding rate briefly turned negative, which in turn lit the fuse for the rebound.

Even more notably, as prices rose, the size of Open Interest also climbed—from about $21.2 billion to $23.0 billion, reaching a historical high. This means the momentum pushing prices higher is not only short covering, but also a large influx of new leveraged long positions. Although the funding rate is still in a mild range and there are no signs of overheating yet, the derivatives traders’ tendency to amplify market volatility is already quite evident.

Spot buying is sluggish, with capital still watching from the sidelines

Compared with the lively derivatives market, the spot market performance looks quite cold. According to CryptoQuant data, since April of this year, spot trading volume has been in a “Cooling” mode, and even during today’s breakout there has been no improvement. At the same time, futures trading volume has only remained at a “neutral” level.

In terms of capital flows, the exchange stablecoin net flow has been negative. However, Sunny Mom added that the overall stablecoin total market cap has not collapsed—it has simply slowed in growth. This indicates that capital has not completely fled the crypto market; instead, it has chosen to withdraw from exchanges and hold off-sidelines in cash, waiting.

ETF inflows are slow; analysts urge caution against sudden sell-off risk

Even though the spot market overall is weak, there are signs that institutional capital is entering gradually. U.S. spot Bitcoin ETFs have recorded net inflows for the second consecutive week. On July 20 alone, they saw about $271 million in inflows, with BlackRock’s IBIT leading at $116.5 million. However, the strength of this institutional buying is still not enough to pull overall spot trading volume out of the cooling range.

In his concluding remarks, Sunny Mom summarized that this rebound was triggered by a short squeeze and maintained by leverage. Although ETF capital is gradually returning, its scale has not yet become substantial. He specifically warned that when upward momentum fades, market structures that lack spot support and rely heavily on leverage often become prone to sharp corrections. Before spot trading volume truly picks back up, investors should be cautious and avoid blindly chasing the rally.