Bitcoin rises above $76,000 following a $650 million short squeeze, driven by US inflation data boosting risk assets.

Bitcoin reached its peak level since the sell-off in early February following an increase in US producer prices, although the rise was less than economists had anticipated in March. The rebound in risk assets was further supported by declining oil prices and stronger equity markets.

As per data from CryptoSlate, Bitcoin exceeded the $76,000 threshold during the early hours of US trading, with the overall cryptocurrency market adding approximately $110 billion to its market capitalization in the past 24 hours.

Bitcoin Price Performance

The prevailing optimism in the market has been primarily fueled by changing expectations regarding the Federal Reserve’s monetary policy, along with unforeseen developments in ongoing geopolitical tensions.

US equities rise as short sellers encounter historic squeeze

Simultaneously, the relief rally extended beyond the cryptocurrency sector.

Bull Theory, a macro-economics platform, observed that traditional financial markets reacted to the inflation data with similar enthusiasm, adding nearly $1.4 trillion in market capitalization to US indices over a two-day period.

The firm reported that the technology-focused Nasdaq Composite jumped 2.85%, contributing $960 billion in value, while the Russell 2000 index of small-cap stocks increased by 3%. The S&P 500 rose by 2.12%, bringing it within 100 points of a new historical high.

At the same time, optimism regarding stabilization in the Middle East led to a significant drop in global energy markets, with West Texas Intermediate (WTI) crude oil falling 6% to settle at $93 per barrel.

For bearish traders positioned against a recovery in digital assets, the sudden surge in bullish momentum was detrimental. Data from derivatives market provider CoinGlass indicated that the rapid rise in Bitcoin prices triggered a wave of liquidations.

Crypto Market Liquidation (Source: CoinGlass)

In just one hour, over $100 million in leveraged positions were eliminated. Total market liquidations quickly surpassed the $650 million mark, with short-sellers experiencing the most significant losses.

Traders betting on price declines incurred an estimated loss of $514.94 million, marking the highest level of short liquidations since the market volatility observed in February.

In this context, Joao Wedson, CEO of blockchain analytics firm Alphractal, remarked:

“Most of the bears were liquidated today! Exactly on April 14th, which is curiously a peculiar and fractal day for Bitcoin!”

Inflation data raises concerns over hawkish pivot

The main driver of Tuesday’s risk-on sentiment was the release of the March Producer Price Index (PPI) by the US Bureau of Labor Statistics. The data indicated that wholesale inflation is rising but remains below Wall Street’s expectations.

The report revealed that the headline PPI increased by 4% year-over-year in March, falling short of the consensus estimate of 4.7%.

However, this marks a significant acceleration from the 3.6% annual increase recorded in February, representing the highest annual growth rate in three years.

On a monthly basis, the PPI rose by only 0.5%, matching February’s pace but significantly below the 1.1% increase predicted by economists.

Core PPI, which excludes the volatile food and energy sectors, remained unchanged at 3.8% year-over-year, falling short of market expectations of 4.2%.

Market analysts connected the rising inflation figures to the US-Iran conflict, which has driven up energy prices and reignited fears of another inflation spike.

In macroeconomic conditions characterized by persistent or rising inflation data, the Federal Reserve faces increased pressure to sustain a restrictive, higher-for-longer interest rate policy.

Consequently, market participants are compelled to eliminate expectations of near-term rate cuts, instead betting that the central bank will adopt a hawkish approach and tighten monetary policy.

Historically, elevated borrowing costs drain liquidity from the broader financial system, disproportionately impacting risk-sensitive assets such as Bitcoin and high-growth technology stocks as capital shifts towards yielding safe havens.

The evolving narrative surrounding Bitcoin’s role

Meanwhile, the rebound in BTC‘s price has reignited a broader discussion regarding the leading cryptocurrency’s role during times of geopolitical tension.

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Bitwise Chief Investment Officer Matt Hougan noted that Bitcoin has outperformed numerous traditional assets since the onset of US and Israeli airstrikes on February 28. According to Hougan, Bitcoin increased by 12% during that period, while the S&P 500 fell by 1% and gold dropped by 10%.

Bitcoin vs Traditional Assets During US-Iran War (Source: Bitwise)

This performance challenges the notion that Bitcoin should invariably decline during every geopolitical crisis due to its classification as a high-volatility risk asset.

Instead, some market participants increasingly perceive Bitcoin as fulfilling two overlapping roles. One is its more established function as a scarce digital asset that competes with gold and other stores of value.

The second role is more speculative, linked to its potential use in international settlements in a world where global payment systems are becoming increasingly fragmented.

This latter concept has gained traction since the West began to exclude major Russian banks from the SWIFT network following Moscow’s invasion of Ukraine. The shift has accelerated the search for alternatives to traditional dollar-based systems, particularly among nations aiming to reduce their exposure to Western financial pressures.

In this context, the Middle East conflict has sparked renewed debate over whether Bitcoin could benefit as geopolitical divisions deepen and the demand for politically neutral payment systems increases.

This argument remains contentious and has not diminished Bitcoin’s sensitivity to interest rates, liquidity, and movements in equity markets.

Nonetheless, it has become a more prominent aspect of market discussions whenever geopolitical tensions escalate.

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