Bitcoin is finding room to rebound but is not yet the fuel to run.
The macro backdrop has improved enough to give bulls something to take advantage of. Cooling headline inflation has bolstered expectations for three interest rate cuts this year, a repeat of the familiar strategy of loose monetary policy to support risk assets.
This could signal a slow return to liquidity in the crypto market after months of tense financial conditions.
But be careful not to read too much into this shift. The Fed is unlikely to initiate an aggressive easing cycle. Instead, it appears to be taking a cautious approach, gradually rebuilding liquidity. This creates an environment where Bitcoin can stage a tactical rally, but it is difficult to sustain.
Bitfinex analysts describe the market as one prone to choppy moves rather than outright breakouts.
“The potential for volatility remains in this environment,” the firm said in a note shared with CoinDesk. “Tactical upward moves are likely when positioning becomes overly defensive, but durable structural progress will require clearer confirmation of macro deflationary trends and sustained spot demand.”
Spot recycling continues to meet steady selling. Each rally has been absorbed more smoothly than earlier in the quarter, suggesting a degree of stability.
Overnight tape is a good example. Bitcoin traded as high as $68,500 before rolling over and falling below $66,000 in the US afternoon, a move consistent with a stronger dollar and hawkish Fed minutes. This intraday reversal is the market’s way of signaling that the rally remains fragile, suggesting traders will be quick to sell once the macro environment turns more unfriendly.
Alex Kuptsikevich, chief market analyst at FxPro, said in an email: “Worryingly, Bitcoin’s dynamics reflect the recent strength of the U.S. dollar. When investors become convinced that the rising dollar is a trend, volatility can increase sharply.”
“Volatility seems to have disappeared in this market, while stock indexes are much more active. There, investors are actively buying dips, relying on support from important moving averages: 50-day for the Dow Jones and Russell 2000, and 200-day for the Nasdaq 100. The cryptocurrency market is currently 17% and 31% below the 50-day and 200-day curves, respectively,” he added.
Meanwhile, market sentiment remains fragile as the Crypto Fear Index has been in single digits nine of the last fourteen days, an area rarely seen outside of the previous cycle lows.
Meanwhile, Glassnode said stablecoin outflows from major exchanges point to tighter liquidity, with long-term holders already showing signs of stress comparable to the end of the 2022 bear market.
Currently, Bitcoin appears to be stuck between improving macro conditions and stubborn supply. Tactical advantages still exist, especially when the positioning is too defensive.
However, a durable rally may require clearer evidence of deflation, a weaker dollar and sustained spot demand. Until then, the road higher may not be smooth.