Bitcoin surged to new record highs above $23,000 earlier on Thursday, before quickly falling back by over $1,500.

The cryptocurrency dropped from the all-time high of $23,770 to $22,185 in the roughly 30 minutes to 09:45 UTC – a 6.67% drop, according to the CoinDesk 20. Prices rose by more than $2,000 to reach new record highs above $23,700 in the first nine hours of the day (UTC).

At the press time price of $22,560, bitcoin is still up 14.37% on a 24-hour basis.

The rally is still looking solid, despite the recent losses. The derivatives market is showing no signs of overheating and on-chain data shows strong holding sentiment.

Bitcoin perpetuals funding rate
Source: Glassnode

While the average level of the bitcoin perpetual futures’ “funding rate” across major exchanges has risen from 0.005% to 0.036%, it remains well below the high of 0.093% seen before the Nov. 24 price drop. In other words, leverage isn’t skewed too bullish and the cryptocurrency has scope to rally further.

Calculated every eight hours, the funding rate reflects the cost of holding long positions. It is positive (or longs pay shorts) when perpetuals trade at a premium to the spot price. As such, a very high funding rate is widely considered a sign of leverage being excessively skewed to the bullish side, or overbought conditions.

Further, there are no signs of large investors looking to book profits, with prices easily rallying to record highs above $23,000. At press time, there are roughly 2,400,000 coins held on exchanges. That’s the lowest since August 2018, according to data source Glassnode, and suggests investors aren’t preparing for a sell-off.

Bitcoin exchange balances
Source: Glassnode

Investors generally move coins from their wallets to exchanges when they plan to liquidate their holdings and take profit.

In a sign of strong holding sentiment, exchange balances have declined by over 15% this year, taking the sell-side liquidity off the market.

Traders, however, should keep an eye on spot market volumes, as liquidity may dry over the Christmas holidays. That could produce wild swings on either side.

Bitcoin exchange volume
Source: Cryptocompare

Patrick Heusser, head of trading at Zurich-based crypto Broker AG, told CoinDesk that the move above $20,000 needs to be backed by continued growth in trading volumes.

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“In terms of spot volume, we have not yet hit the amount we saw in November (but, we do have another 13 days to go). With holidays around, it doesn’t look like December volume would top November’s tally,” Heusser said, adding that would be the first warning of bull fatigue.

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