Bitcoin has rebounded above $70,000, staging a recovery from a recent dip that saw the cryptocurrency briefly fall below $60,000 earlier this month. The move comes as investors digest cooler-than-expected U.S. Inflation data and reassess the likely trajectory of interest rates.
As of , Bitcoin was trading around $70,600, representing a nearly 5% gain in the past 24 hours, according to CoinDesk data. The broader CoinDesk 20 (CD20) index, which tracks the performance of the largest digital assets, rose 6.2% over the same period, indicating a broader market recovery.
The catalyst for the rally was January’s Consumer Price Index (CPI) report, which showed inflation rising 2.4% year-over-year – slightly below the anticipated 2.5%. This softer-than-expected reading fueled speculation that the Federal Reserve may begin cutting interest rates sooner than previously anticipated. Lower interest rates generally make risk assets, such as cryptocurrencies and stocks, more attractive to investors.
Market participants are now pricing in a 26% probability of a 25 basis point rate cut in April, up from 19% earlier in the week, according to trading activity on the Kalshi prediction market. Polymarket, another prediction platform, has seen the odds of an April rate cut increase from 13% to 20%.
Despite the price recovery, a significant degree of anxiety persists within the cryptocurrency market. The Crypto Fear & Greed Index remains firmly in “extreme fear” territory, levels not seen since the collapse of FTX in 2022. This suggests that investors remain cautious despite the recent gains.
Underlying the market’s fragility is the substantial amount of realized and unrealized losses experienced by Bitcoin holders in recent weeks. Bitwise analysts reported $8.7 billion in Bitcoin losses were realized last week, marking the second-largest loss event on record, surpassed only by the fallout from the Three Arrows Capital (3AC) collapse in 2022.
Bitcoin treasury firms, companies that hold Bitcoin as a primary asset, had accumulated over $21 billion in unrealized losses at one point. While the recent price recovery has reduced this figure to $16.9 billion, it remains a substantial amount, highlighting the impact of the recent downturn on institutional investors.
The current rally may be supported by thinner trading volumes and a degree of “seller exhaustion,” where investors who previously intended to sell have already done so. Some analysts characterize the $8.7 billion in realized losses as a potential “capitulation event,” suggesting that the most bearish sentiment may have already been priced in.
However, the prevailing fear in the market presents a challenge to sustained gains. As Danny Nelson, a research analyst at Bitwise, noted, “the main driver right now is fear. Fear that we’ll go lower.” This fear is prompting investors to view any rallies as opportunities to sell, potentially limiting the upside.
The recovery also follows a period of significant volatility. In early February, Bitcoin briefly dipped below $60,000, representing a roughly 52% decline from its all-time high of $126,000 reached in October. This decline coincided with broader weakness in the technology sector, fueled by concerns about a potential AI bubble.
The market’s earlier strength had been linked to favorable policies towards the sector during the presidency of Donald Trump. However, that momentum has dissipated, and investors are no longer viewing crypto as a safe haven asset. Strategy, a company heavily invested in Bitcoin, reported a $12.4 billion net loss in the most recent quarter, underscoring the financial impact of the downturn on even the most committed Bitcoin proponents.
The coming weeks will be crucial in determining whether the current rally can be sustained. The interplay between macroeconomic factors, such as interest rate expectations, and market sentiment will be key. The ability of Bitcoin to attract new investment and overcome the lingering fear among investors will ultimately dictate its trajectory.
