• Bitcoin recovered above $65,000 as derivatives markets improve, although spot demand remains weak.
• Bitcoin ETFs attracted $76.2 million in weekly inflows, signaling continued recovery in institutional demand.
• Analysts noted that geopolitical tensions and a hawkish Federal Reserve continue to limit Bitcoin's upside.

Bitcoin (BTC) has climbed above $65,000 on Monday as improving onchain activity, recovering US spot Bitcoin exchange-traded fund (ETF) flows, and stabilizing derivatives point to a more balanced market, according to Glassnode.

In a report on Monday, the firm stated that while the recent Bitcoin price rebound remains intact, declining spot volumes suggest investors are still waiting for stronger conviction before driving the next major move. Spot trading volumes fell below the lower statistical band of $4.5 billion, indicating that investors remain cautious.

"This persistent lack of liquidity suggests a period of consolidation, where investor participation is currently muted," Glassnode wrote.

Institutional demand strengthens as derivatives markets show renewed confidence

Despite slowing spot demand, derivatives markets showed signs of improving sentiment. Bitcoin futures Open Interest rose to $32 billion alongside prices.

Options Open Interest also increased 7.7% to $30.1 billion, suggesting investors are actively building new positions ahead of the market's next major move.

Glassnode noted that the gap between implied and realized volatility has narrowed, reflecting that traders are no longer pricing in the elevated risk premium seen during June's sell-off.

Demand for protective put options has also eased, signaling reduced bearish hedging as sentiment shifts toward a more neutral outlook.

On the institutional side, US spot Bitcoin ETFs continued their recovery, posting $76.2 million in net inflows last week after pulling in $197.4 million in the previous week. Weekly trading volume in the products also increased to $9.4 billion, while the aggregate ETF investor base has largely returned to breakeven after previously sitting underwater.

Glassnode noted that the recovery suggests institutional demand is stabilizing, although speculative participation remains measured rather than aggressive.

“The expansion in volume suggests an uptick in speculative interest and increased responsiveness from participants to current market conditions,” the firm's analyst wrote.

Despite the improving backdrop, Glassnode warned that the growing share of short-term holders could make the market increasingly sensitive to shifts in sentiment.

"The growing share of short-term, price-sensitive capital raises the likelihood of sharper volatility," the firm added.

Macro uncertainty keeps pressure on markets despite Bitcoin's resilience

With investor sentiment around Bitcoin gradually improving, QCP analysts signaled that macroeconomic developments remain the dominant force influencing Bitcoin and broader financial markets.

The firm stated that markets remain firmly in risk-off mode as geopolitical tensions between the US and Iran continue to support Oil prices, while a more hawkish Federal Reserve (Fed) limits expectations for easier monetary policy.

Brent Crude has climbed above $85 per barrel, reaching one-month highs amid concerns over supply disruptions near the Strait of Hormuz.

Despite the pressure, BTC continues to show resilience with other analysts also pointing to improving institutional demand via US spot Bitcoin ETFs.

“Recent spot Bitcoin ETF inflows show institutional demand has returned, but July is still repairing the damage from prior outflows, including heavy redemptions in May and June,” said Lacie Zhang, Research Analyst at Bitget Wallet. “In this environment, ETF demand can absorb supply and prevent a deeper breakdown, but it does not automatically create upside momentum if hedge funds, miners, treasury vehicles or leveraged traders are reducing exposure at the same time.”

BTC is trading at $65,050, up 1% over the past 24 hours at the time of writing.