Bitcoin hits all-time high without leverage surge — Is $120K next?

• BTC tagged a record high of over $111K, but the market was not overheated. 
• Option traders were pricing a 15% of BTC extending to $120K by the end of May. 

Bitcoin’s [BTC] run-up to a new ATH of $111.8K extended the crypto asset’s Q2 recovery gains to 48%.

But the record rally wasn’t accompanied by massive market leverage, signalling a healthy situation for bullish continuation. 

But do other indicators tracking an overheated market paint the same picture, and what are the key levels to watch? 

Assessing BTC’s uptrend risks

One of the top indicators for gauging market leverage, Funding Rate (FR), was yet to flash overheated warning signals at press time.

The FR for BTC ranged from 3% to 20% in the past three days.  The indicator is used to tie the price of the BTC perpetual (futures) contract to the spot market value.

To achieve the correlation, traders pay a fee, the FR, to maintain their position.

In a bullish market, the funding is positive, and bulls (longs) pay short position holders periodically, about every 8 hours. For bearish markets, the opposite applies. 

That said, excessive market leverage (taking massive loans) to bet on price is always flagged by a high FR between 50% and 100%.

This kind of market froth always happens in bull runs, increasing liquidation risks, a mark of an overheated bull market. The result is a likely cool-off or pullback. 

That’s what happened after the massive BTC run-up above $100K last November and December. BTC’s FR jumped above 50% and even hit 100% (orange zones). 

On the contrary, the May pump to $111K was different and marked by a healthy market with low leverage. 

So, from a Funding Rates perspective, the risk of a price reversal due to an overheated market remained low.

Another data that supported further uptrend was the True MVRV, a valuation metric. At press time, the metric was valued at 1.7 and has previously flagged local tops in late and early 2024 when it tapped 2. 

Assuming history repeats itself, BTC still has a slight room for growth before hitting a local peak around 2 or a cycle peak (if MVRV hits 3).  

But, how much higher can BTC climb from $111K?

Option traders estimate only a 15% chance of BTC reaching $120K by May’s end. However, contracts targeting $115K and $120K were the most purchased in the last 24 hours.

Even calls aiming for $130K by September saw strong bids, signaling significant bullish sentiment for Q2 and Q3.

Whether these bets will materialize remains uncertain.