Bitcoin climbed back above $90,000 on Tuesday, recovering from a slump that caught Wall Street off guard and wiped out nearly $1 billion in new leveraged bets. The rebound provides some respite from months of decline, but traders remain cautious, sentiment remains fragile and the cryptocurrency market shows signs of ongoing stress.
Bitcoin once rose 6.8% to $92,323, Ethereum rebounded more than 8%, and the price once rose back to more than $3,000. Smaller, less liquid coins such as Cardano, Solana and Chainlink gained more than 10%.
Is the price of Bitcoin close to its true value? Prices have fallen about 16% in the past six months, and many are beginning to question the extent of the hype.
After weeks of weak investor demand, traders cited a number of positive signs, including comments from SEC Chairman Paul Atkins that he plans to unveil specific measures for an "innovation exemption" for digital asset companies. Additionally, Vanguard Group announced on Monday that it will allow ETFs and mutual funds that primarily hold cryptocurrencies to trade on its platform.
Jasper De Maere, a strategist at Wintermute, said, “It appears to be a combination of industry-specific news and cryptocurrencies catching up with the broader market that is driving this strong price action.”
On Monday, Strategy Inc. The coin's price tumbled following comments made over the weekend by the CEO, who said the Bitcoin accumulation company may sell the cryptocurrency if it needs to repay debt. Later that morning, Strategy announced it would set up $1.4 billion in reserves to ensure cash is readily available.
“While at first glance participants view this as an extremely negative situation, their current conservative liquidity response reduces the likelihood of extreme left-tail outcomes in the future,” said Spencer Hallarn, global head of OTC trading at cryptocurrency investment firm GSR.
Still, market watchers say several indicators suggest the rebound may be uneven. According to data from CryptoQuant, Bitcoin funding rates, a key measure of cryptocurrency market sentiment, have turned negative over the past few days, meaning there is more demand for short positions than long positions in the perpetual futures market.
“The overall sentiment remains cautious,” said Chris Kim, CEO of quantitative asset management protocol Axis. “Cryptocurrency native traders are nervous.” At the same time, institutional investors appear to be waiting for the Federal Reserve’s interest rate decision next week before increasing exposure, he said.
Bitcoin has fallen nearly 30% since hitting record highs in early October, leaving the entire digital asset market increasingly vulnerable after weeks of selling.
Cryptocurrencies associated with U.S. President Donald Trump’s family have also been caught up in the selloff. His official meme coin, TRUMP, has plummeted from record highs of around $73.40 reached shortly after its launch in January. The coin is currently trading at around $6, according to CoinGecko data.
WLFI, the token of Trump-related decentralized finance platform World Liberty Financial, is down about 30% from its September high. First Lady Melania Trump’s meme coin MELANIA currently trades at 13 cents, having lost almost all of its value since its peak in January.
Bitfinex analysts pointed out that in another sign of investor caution, balances of stablecoins such as USDT and USDC have risen on cryptocurrency exchanges, indicating that traders are parking funds rather than actively buying dips.
“This is typical in late-cycle pullbacks: investors are hedging by moving to stablecoins until ETF flows stabilize and macro uncertainty is eliminated,” analysts at Bitfinex said in a report. “Importantly, this is not the kind of behavior where stablecoin liquidity will be drained at long-term tops; in the current situation, liquidity is accumulating on the sidelines, indicating that investors are conserving strength and waiting for clearer conditions.”
CoinMarketCap's "Fear and Greed Index" was at a level indicating "extreme fear" on Tuesday, and has been hovering near this area for the past three weeks, further highlighting investors' cautious attitude.