Bitcoin has bounced back above $70,000, recovering from a sharp drop near $60,000 earlier this month.
The cryptocurrency is up nearly 5% in the past 24-hour period, while the broader CoinDesk 20 (CD20) index is up 6.2% over the same period.
The rebound comes as investors react to cooler-than-expected US inflationary pressures and signs of renewed risk appetite. The consumer price index for January rose 2.4% year-on-year, just below the 2.5% expected.
That gave markets a reason to believe interest rate cuts could come sooner than expected, lifting both stocks and cryptocurrencies. Lower interest rates make risky assets more attractive, as returns on risk-free or low-risk investments fall.
Prediction market trader Kalshi is currently weighing a 26% chance of a 25bps rate cut in April, up from 19% earlier this week. At Polymarket, the odds rose from 13% to 20%.
Yet the rally masks deeper fractures beneath the surface.
The Crypto Fear & Greed Index continues to reflect deep anxiety, hovering near extreme fear levels last seen during the 2022 bear market over the collapse of FTX. The index has been sitting in “extreme fear” since the beginning of the month.
Bitwise analysts noted that $8.7 billion in bitcoin losses were realized in the past week, second only to the fallout from the 3AC collapse.
“Nevertheless, the rotation of supply from weaker hands to conviction investors has historically been associated with market stabilization phases, although such redistribution takes time to fully unfold,” Bitwise wrote.
Bitcoin treasury firms were sitting on over $21 billion in unrealized losses, a record high. Bitcoin’s recovery has seen that figure drop to $16.9 billion.
Thinner trading volumes support the current weekend rally and seller exhaustion. The $8.7 billion in realized losses last week could be seen as a “textbook capitulation event.”
Still, the extreme fear gripping the market poses a challenge. AS Bitwise analyst Danny Nelson told CoinDesk, the market’s “main driver right now is fear. Fear that we’re going to go lower.”
This fear is seeing investors take any upcoming rally as a chance to sell. Whether that will continue to materialize or whether the shift to higher conviction holders will see the market change direction remains to be seen.
