Bitcoin is finding room to rebound, but it hasn’t been fueled yet.
The macro background has improved enough to deal with the bulls. Weaker headline inflation has fueled speculation of a third rate cut this year, reinstating the familiar strategy of easy monetary policy supporting risky assets.
And that could signal a slow recovery in liquidity after months of tough financial conditions in the crypto market.
However, be careful not to read too much into the changes. The Fed is unlikely to embark on an aggressive easing cycle. Instead, a cautious approach to gradually rebuild liquidity appears to be in the cards. This creates an environment where Bitcoin can stage a tactical rally but struggles to sustain it.
Bitfinex analysts describe this market as a wave-like market rather than a clean breakout.
“Volatility remains likely in this environment,” the company said in a note shared with CoinDesk. “Tactical upside moves could occur if positioning becomes overly defensive, but sustained structural progress will require clearer confirmation from both macro disinflationary trends and sustained spot demand.”
Spot recovery continues to correspond with steady selling. Each bounce was absorbed more smoothly than earlier in the quarter, suggesting some stabilization.
Overnight tape is a good example. Bitcoin traded as high as $68,500 before reversing to below $66,000 in the US afternoon, a move that coincided with a stronger dollar and hawkish Fed minutes. This type of intraday reversal indicates that the market is determining that the rally is still fragile and that traders will sell as soon as the macro environment becomes any less friendly.
“It is concerning that Bitcoin’s movements reflect the recent strength of the dollar. Volatility could rise sharply if investors become convinced that dollar strength is the trend,” Alex Kupczykevich, chief market analyst at FxPro, said in an email.
“While volatility appears to be subdued in this market, the stock indexes are much more active, where investors rely on support in the form of important moving averages and are aggressively buying on the edge, with 50 days for the Dow Jones and Russell 2000 and 200 days for the Nasdaq 100. The crypto market is currently 17% and 31% below the 50-day and 200-day curves, respectively,” he added.
Meanwhile, sentiment remains fragile, with crypto fear levels in the single digits for nine of the past 14 days, territory rarely seen outside of historical cycle lows.
At the same time, stablecoin outflows from major exchanges indicate a liquidity crunch, with long-term holders showing signs of stress comparable to the end of the 2022 bear market, according to Glassnode.
For now, Bitcoin appears to be caught between improving macro optics and stubborn supply. There is still potential for a tactical turnaround, especially if the positioning becomes too defensive.
However, sustained progress will likely require clearer evidence of disinflation, a weaker dollar, and consistent spot demand. Until then, the road to greater heights may not be smooth.
