Bitcoin Faces Structural Challenges as Liquidity and Demand Shift

Bitcoin's recent price gains have not resolved underlying structural issues in the market. As of October 5th, demand for Bitcoin in Europe has surged, while US demand has declined. This geographic imbalance has led to a concentration of liquidity in Bitcoin, which is challenging for Ethereum, as its liquidity is significantly lower.

The US 10-year Treasury yield reached a high of 5.34% before settling around 5.25%, impacting Bitcoin's performance. Despite a 3% week-to-date gain and an 8.8% month-to-date increase, Bitcoin was trading below $86,000 on Monday. The correlation between yields and cryptocurrency prices has become more pronounced, with higher yields making risk-free government debt more attractive.

Large accounts are leaning short on the rally, with a long-short ratio of 0.62 for Bitcoin and 0.65 for Ethereum as of October 5th. This indicates that big money sees the surge as vulnerable, contrasting with the narrative of institutional adoption and ETF inflows. The liquidity vacuum around $90,000 could trigger significant volatility if Bitcoin's price reaches that level.

Ethereum's liquidity problem is also a concern, with its median order-book depth at major exchanges being only 35%, 45% of Bitcoin's. This disparity is due to Bitcoin's improved liquidity from spot ETFs, while Ethereum's ETFs have not attracted the same level of institutional investment. The immediate technical obstacle to watch is the $87,000 cap on Bitcoin, with potential liquidations targeting the $89,000, $90,000 range.