The cryptocurrency market is witnessing a significant shift in sentiment, with offshore traders remaining heavily exposed despite a record 19-day net inflow streak for U.S. spot Bitcoin exchange-traded funds coming to an end. According to K33 Research, this exposure increases the potential for near-term long squeezes ahead of key macro events this week. The leverage in bitcoin perpetual contracts has reached yearly highs of 260,000 BTC, following a steady two-week uptrend.

K33 Senior Analyst Vetle Lunde and DeFi analyst David Zimmerman noted in a report that "bullish traders from the past two weeks are currently underwater, with notional open interest having climbed by 32,000 BTC since bitcoin last traded at current prices." This situation has led to traders on the CME de-risking, resulting in $64.9 million in net outflows from the spot Bitcoin ETFs on Monday. Consequently, annualized futures premiums have dropped from around 12% for both bitcoin and ether last week to a low of 6% on Tuesday, levels not seen since May 23.

The analysts emphasized that while short-time frame positioning suggests cautious behavior among institutional traders, exposure remains high as open interest sits near all-time highs. The U.S. spot Bitcoin ETFs recorded a three-month high net inflow of 25,917 BTC ($1.8 billion) last week, although bitcoin's price continued to range with relatively low volatility. This has sparked a debate about whether the strong ETF flows are net neutral due to aggressive basis trade activity on the CME, involving arbitrage between spot and futures markets.

The market's adverse reaction to Friday's strong U.S. nonfarm payroll numbers has delayed interest rate cut expectations, shifting attention to the U.S. CPI inflation numbers due on Wednesday, followed by the Federal Reserve's interest rate decision, which is expected to be held at 5.5%. The K33 analysts believe that the FOMC dot plot, alongside forward guidance during Jerome Powell's press conference, is likely to be the most material price movers, as bitcoin has resumed its attentiveness to the market's interest rate expectations.

The largest cryptocurrency by market cap fell 3.5% over the past 24 hours to $66,878, according to The Block's bitcoin price page. Ether has returned to underperformance against bitcoin, trading down 4% over the past 24 hours, with the ETH/BTC pair pushing back toward 0.052. The analysts noted that ETF flows have been far more expansive than CME OI developments since May 1, with ETFs adding 36,000 more BTC than CME OI since May 1, indicating that a majority of ETF flows stem from participants aiming to build directional long exposure.

Moreover, bitcoin's correlation to U.S. equities has reached levels not seen in 18 months, with bitcoin's 30-day correlation coefficient to the Nasdaq growing to 0.64 last week for the first time since 2022. Despite this, the K33 analysts reiterated their bullish stance on ether, expecting relative strength against bitcoin throughout the summer, stemming from spot Ethereum ETF approvals. The cryptocurrency market is experiencing a significant shift in sentiment, with offshore traders remaining heavily exposed despite a record 19-day net inflow streak for U.S. spot Bitcoin exchange-traded funds coming to an end.