bitcoin is back above $70,000, recovering from a sharp drop near $60,000 at the beginning of the month.
The cryptocurrency is up almost 5% in the last 24-hour period, while the broader CoinDesk 20 index (CD20) is up 6.2% in the same period.
The rally comes as investors react to cooler-than-expected U.S. inflation and signs of renewed risk appetite. The consumer price index for January rose 2.4% year over year, just below the 2.5% forecast.
That gave markets reason to believe that interest rate cuts could come sooner than expected, boosting both stocks and cryptocurrencies. Lower interest rates make risky assets more attractive as the rate of return on risk-free or low-risk investments decreases.
Kalshi prediction market traders are currently weighing a 26% chance of a 25 basis point rate cut in April, up from 19% at the start of the week. At Polymarket, the odds increased from 13% to 20%.
Still, the rally hides deeper fractures beneath the surface.
The Crypto Fear & Greed Index continues to reflect deep anxiety, holding near extreme fear levels last seen during the 2022 bear market over the FTX collapse. The index has been mired in “extreme fear” since the beginning of the month.
Bitwise analysts noted that $8.7 billion in bitcoin losses occurred in the last week, second only to the fallout from the 3AC collapse.
“However, the rotation of supply from weaker hands to convinced investors has historically been associated with phases of market stabilization, although such redistribution requires time to fully develop,” Bitwise wrote.
Bitcoin treasury companies racked up more than $21 billion in unrealized losses, an all-time high. Bitcoin’s recovery has caused that figure to fall to $16.9 billion.
Lower trading volumes are supporting the current weekend rally and seller exhaustion. The $8.7 billion in losses realized in the last week could be seen 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 main driver of the market right now is fear. Fear that we will go down.”
That fear is that investors will take any coming rally as an opportunity to sell. It remains to be seen if that will continue to materialize or if the shift toward holders with greater conviction will cause the market to change direction.
