Bitcoin It has recovered from a sharp drop of nearly $60,000 earlier this month and is back above $70,000.
The cryptocurrency has gained nearly 5% in the past 24 hours, while the broader CoinDesk 20 (CD20) index has gained 6.2% in the same period.
The rally came as investors reacted to weaker-than-expected U.S. inflation data and signs of renewed risk appetite. The consumer price index rose 2.4% year-on-year in January, slightly lower than the 2.5% expected.
That gives markets reason to believe a rate cut could come sooner than expected, boosting stocks and cryptocurrencies. Lower interest rates make risky assets more attractive because the rate of return on risk-free or low-risk investments decreases.
Traders at Kalshi Forecast Markets currently see a 26% chance of a quarter-point rate cut in April, up from 19% earlier this week. At Polymarket, this probability rose from 13% to 20%.
Still, the rally masks deeper fissures beneath the surface.
The Crypto Fear & Greed Index continues to reflect deep anxiety, hovering near the extreme fear levels seen during the 2022 bear market following the FTX crash. The index has been in “extreme fear” since the beginning of the month.
Bitwise analysts pointed out that Bitcoin losses last week reached $8.7 billion, second only to the losses caused by the 3AC collapse.
“Nonetheless, the shift of supply from weaker hands to confident investors has historically been associated with phases of market stabilization, although this reallocation takes time to fully unfold,” Bitwise wrote.
Bitcoin Finance’s unrealized losses exceeded $21 billion, a record high. Bitcoin’s recovery brought this number down to $16.9 billion.
Lower trading volume supported gains over the weekend and seller exhaustion. Last week’s realized losses of $8.7 billion can be viewed as a “textbook capitulation event.”
However, the extreme fear gripping the market poses a challenge. AS Bitwise research analyst Danny Nelson told CoinDesk that the market’s “main driver right now is fear. Fear that we’re going to go lower.”
This concern leads investors to view any upcoming rally as a selling opportunity. It remains to be seen whether this will continue to materialize, or whether a shift to more convinced holders will cause the market to change direction.