Institutional risk-off sentiment affected traders on the CME on Tuesday morning, marking the end of a record 19-day net inflow streak for U.S. spot Bitcoin exchange-traded funds (ETFs). Offshore crypto participants remain "heavily exposed," heightening the potential for near-term long squeezes ahead of key macro events this week, according to K33 Research.

K33 Senior Analyst Vetle Lunde and DeFi analyst David Zimmerman reported that leverage in Bitcoin perpetual contracts has soared to yearly highs of 260,000 BTC after a consistent two-week uptrend. "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," they noted.

Following $64.9 million in net outflows from spot Bitcoin ETFs on Monday, traders on the CME de-risked, with annualized futures premiums for both Bitcoin and Ether dropping from around 12% last week to a low of 6% on Tuesday—levels not seen since May 23. "While short-time frame positioning suggests cautious behavior among institutional traders, exposure remains high as open interest sits near all-time highs," the analysts added.

Last week, U.S. spot Bitcoin ETFs recorded a three-month high net inflow of 25,917 BTC ($1.8 billion), even though Bitcoin’s price remained relatively stable with low volatility. This surge in open interest sparked a debate about whether strong ETF flows are net neutral due to aggressive basis trade activity on the CME, involving arbitrage between spot and futures markets.

"This observation is partly true but far from reflecting the entire picture, as ETF flows have been far more expansive than CME OI developments since May 1. ETFs have added 36,000 more BTC than CME OI since May 1, indicative of a majority of ETF flows stemming from participants aiming to build directional long exposure," the analysts said.

Additionally, Bitcoin’s correlation to U.S. equities has reached an 18-month high, with Bitcoin’s 30-day correlation coefficient to the Nasdaq growing to 0.64 last week for the first time since 2022. This trend was partly evidenced by the market's adverse reaction to Friday's strong U.S. nonfarm payroll numbers, which delayed interest rate cut expectations.

Attention is now focused on the U.S. CPI inflation numbers due Wednesday, followed by the Federal Reserve’s interest rate decision, expected to be held at 5.5%. "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 K33 analysts said.

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. However, the K33 analysts reiterated their bullish stance on Ether, expecting relative strength against Bitcoin throughout the summer, driven by spot Ethereum ETF approvals.