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Despite the recent price rebound, the Crypto Fear & Greed Index remains in “extreme fear,” signaling persistent market trepidation.
(Yashowardhan Singh/Unsplash/Modified by CoinDesk)
Key points:
- Bitcoin has bounced back above $70,000 following a decline, spurred by lower-than-anticipated U.S. inflation data and a heightened risk appetite.
- Despite this rebound, the Crypto Fear & Greed Index remains in “extreme fear,” reflecting ongoing market apprehension.
- In the past week, realized losses in bitcoin reached $8.7 billion, which may indicate a capitulation event and a transition of supply to more committed investors.
Bitcoin has managed to recover above $70,000, rebounding from a steep decline to near $60,000 earlier in the month.
The cryptocurrency has increased by nearly 5% over the last 24 hours, while the broader CoinDesk 20 (CD20) index has risen by 6.2% during the same timeframe.
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The recovery follows investor reactions to a cooler-than-expected U.S. inflation report and indications of renewed risk tolerance. The Consumer Price Index for January saw a 2.4% year-over-year increase, slightly below the estimated 2.5%.
This development has led markets to speculate that interest rate cuts might occur sooner than anticipated, boosting both stock and cryptocurrency values. Reduced interest rates enhance the appeal of risk assets, as the potential return on risk-free or low-risk investments diminishes.
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Participants on the prediction market Kalshi are currently assessing a 26% probability of a 25 basis points rate cut in April, an increase from 19% earlier in the week. On Polymarket, the likelihood has risen from 13% to 20%.
However, the price increase conceals more significant issues beneath the surface.
The Crypto Fear & Greed Index continues to exhibit substantial anxiety, remaining near extreme fear levels last observed during the 2022 bear market following the FTX collapse. The index has been entrenched in “extreme fear” since the start of the month.
Analysts at Bitwise pointed out that $8.7 billion in bitcoin losses were realized over the last week, the second highest after the impact of the 3AC collapse.
“Nonetheless, the shift of supply from weaker holders to more confident investors has historically been linked to phases of market stabilization; however, such redistribution requires time to fully materialize,” noted Bitwise.
Bitcoin treasury firms are currently holding over $21 billion in unrealized losses, marking an all-time high. Bitcoin’s recovery has reduced this figure to $16.9 billion.
Lower trading volumes are facilitating the ongoing rally during the weekend, alongside seller fatigue. The $8.7 billion in realized losses over the past week could be interpreted as a “textbook capitulation event.”
Nevertheless, the extreme fear dominating the market presents a challenge. As Bitwise research analyst Danny Nelson stated to CoinDesk, the market’s “primary driver right now is fear. Fear that we’ll go lower.”
This fear is prompting investors to view any forthcoming rally as an opportunity to sell. Whether this trend will persist or if the market will trend towards higher-conviction holders remains to be seen.
