Bitcoin has recovered above $70,000, recovering from a sharp decline of almost $60,000 earlier in the month.
The cryptocurrency is up nearly 5% over the past 24 hours, while the broader CoinDesk 20 Index (CD20) is up 6.2% over the same period.
The rebound 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-on-year, just below the 2.5% forecast.
This 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 declines.
Traders on the Kalshi Prediction Market currently put the chance of a 25 basis point rate cut in April at 26%, up from 19% earlier in the week. On Polymarket, the odds increased from 13% to 20%.
Yet the recovery 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 following the collapse of FTX. The index has been in “extreme fear” since the start of the month.
Analysts at Bitwise noted that $8.7 billion in bitcoin losses were realized last week, second only to the fallout from the 3AC collapse.
“Nevertheless, the rotation of supply from weaker hands to committed investors has always been associated with market stabilization phases, although such redistribution takes time to fully unfold,” Bitwise wrote.
Bitcoin cash companies were sitting on more than $21 billion in unrealized losses, an all-time high. Bitcoin’s recovery saw this figure fall to $16.9 billion.
Decreasing trading volumes support the current weekend rally and seller exhaustion. Last week’s $8.7 billion in losses could be considered a “classic capitulation event.”
Yet the extreme fear gripping the market poses a challenge. Danny Nelson, research analyst at AS Bitwise, told CoinDesk that “the biggest driver of the market right now is fear. Fear that we’re going lower.”
This fear is that investors will seize any upcoming recovery as an opportunity to sell. Whether this will continue to materialize or whether the shift to higher conviction holders will see the market change direction remains to be seen.
