Bitcoin is one rally away from new highs, but overly euphoric bulls signal ‘overheating’ market

Key takeaways:

• Bitcoin price maintains its bullish momentum, but a sentiment indicator suggests the market could be overheating
• Data highlights Bitcoin traders taking profits and a lopsided market angled toward longs.
• Analysts warn of a potential short-term correction, especially if gold weakens or seasonal trends play out.

Optimism has returned to the crypto markets, and many traders believe Bitcoin (BTC) price is on the path to new all-time highs. In just one month, Bitcoin surged 39%, briefly crossing the $105,000 mark. According to Glassnode analysts, “there are signs of renewed market strength, and the market is trading within a profit-dominated regime.”

Still, not everyone is convinced the rally will continue unchecked. Some investors are already taking profits, pushing Bitcoin’s realized cap to an all-time high of $889 billion. Even more profit-taking is expected at the $106,000 level.

Historically, euphoric market sentiment has often led to periods of consolidation—or even sharp corrections. That risk may be growing, particularly as gold, whose price action Bitcoin has closely mirrored in recent months, is showing signs of fatigue and could be heading for a correction itself.

Most investors are back in profit

The recent Bitcoin rally has returned over 3 million BTC to a profitable state, according to Glassnode. This shift has reignited capital inflows, which exceeded $1 billion per day, suggesting strong demand-side interest and a market willing to absorb selling pressure. Even most short-term holders who were underwater since the December 2024 peak have seen their portfolios turn green.

BTC short-term holders’ relative unrealized loss. Source: GlassnodeThis relief, both financial and psychological, is already translating into spending behavior. The net difference between short-term holders’ transfer volume in profit versus at a loss has swung sharply to +20%—a notable reversal from the -20% seen during the capitulation phase at the end of April.

Institutional investor confidence is also rebounding. Over the past three weeks, more than $5.7 billion has flowed into Bitcoin ETFs, according to CoinGlass. The total assets under management held within the US spot ETFs have now climbed to over 1.26 million BTC, a new all-time high.

Are crypto traders too euphoric right now?

With so much momentum, it’s easy to imagine a moonshot. But that same momentum may be cause for caution. BTC’s open interest has climbed to $68 billion, near all-time highs, indicating a heavily positioned market. In such conditions, even a small catalyst could spark an outsized move—up or down.

André Dragosch, head of research at Bitwise Asset Management, warned that Bitcoin might be getting a bit ahead of itself. He posted Bitwise’s in-house Cryptoasset Sentiment Index, which has reached its highest level since November 2024. The index, which includes 15 sub-indicators spanning sentiment, flows, onchain data, and derivatives (such as the perpetual funding rate and put-call volume ratio), now shows an overheated market.

Bitcoin price vs Cryptoasset sentiment index. Source: BitwiseIn comments to Cointelegraph, Dragosch said,

“The latest readings imply that market sentiment has become overheated and that positioning appears to be one-sided on the long side. It tends to signal an increased risk for a temporary pull-back in the price of Bitcoin, and that the current rally could take a break.”

Yet, Dragosch remains “structurally constructive” until the end of 2025, citing the continued BTC accumulation by corporations and ETPs, which continues to deplete Bitcoin on-exchange balances.

Related: Arizona governor kills two crypto bills, cracks down on Bitcoin ATMs

Potential crypto market headwinds

Several risks could challenge Bitcoin in the short term.

For Bitwise chief investment officer Matt Hougan, renewed regulatory uncertainty is a top concern, particularly after the Senate stalled stablecoin legislation last week.

Broader shifts in market behavior may also be at play. Since March 2025, Bitcoin has shown a stronger correlation with gold than with equities. That shift followed dramatic changes in US policy, which appeared to steer capital toward politically neutral assets: both Bitcoin and gold rose 22% (the latter since corrected to a 13% gain). At the same time, the S&P 500 and Nasdaq-100 merely clawed back earlier losses.

BTC/USD vs gold, SPX, and NDX 1-day. Source: Marie Poteriaieva, TradingViewThis divergence continues on shorter time frames. Since May 12, major US indexes gained 3% to 4% on positive developments in US-China trade relations, but Bitcoin barely budged. Meanwhile, gold has started printing lower highs—a potential early signal of a downtrend, as noted by analyst Michael Van de Poppe. If gold enters a corrective phase, Bitcoin might follow suit.

Seasonality may also play a role. The adage “Sell in May and go away” has some historical backing. As analyst Daan Crypto Trades noted, May has typically been a green month for Bitcoin (averaging over 8%), while June and September are often the worst-performing months. As he put it,

“Seasonality is never something to solely base your decisions on, but it can work out well. Many investors are watching the same thing after all.”

Whether this rally has more room to run—or is due for a breather—may soon be put to the test.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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