Bitcoin bounced back above $90,000 on Tuesday after a sharp drop that surprised Wall Street and wiped out nearly $1 billion in new bets. This rebound provided a short break in a long period of losses, but traders are still careful, with the mood in the market remaining fragile and signs of trouble continuing across the crypto world.
Bitcoin rose by up to 6.8%, reaching $92,323. Meanwhile, its biggest competitor, Ether, jumped over 8%, briefly pushing its price back above $3,000. Smaller cryptocurrencies like Cardano, Solana, and Chainlink saw even bigger gains, rising more than 10%.
What’s fueling the crypto rally?
Bloomberg reports that traders have pointed to several encouraging signs after weeks of declining investor interest. One factor is the announcement by Securities and Exchange Commission Chairman Paul Atkins, who revealed plans to introduce measures that would grant digital asset companies an “innovation exemption.” Another key development was Vanguard Group’s announcement on Monday, allowing ETFs and mutual funds that mostly hold cryptocurrencies to be traded on its platform.
Jasper De Maere, a desk strategist at Wintermute, explained that this strong price movement seems to be a mix of industry-specific news and cryptocurrency catching up to the broader market trends.
Brendan Fagan, a macro strategist at Bloomberg, noted that the latest rally in crypto suggests a shift from a period of liquidation to a phase where investors are more willing to take risks again. While the overall market situation remains uneven, he pointed out that the combination of washed-out positions and increasing institutional support is creating a stronger foundation than seen in recent weeks.
‘Overall a cautious sentiment’
The Bitcoin funding rate, a key indicator of sentiment in the crypto market, has recently turned negative, according to CryptoQuant. This suggests that more traders are betting against Bitcoin than betting on its price rising in the perpetual futures market, the Bloomberg report said.
The report further cited the opinion of Chris Kim, CEO of quantitative asset management firm Axis, who noted that the overall mood in the market is cautious, with crypto traders feeling nervous. Institutional investors, he added, seem to be holding off on taking on more risk until after the Federal Reserve announces its interest rate decision next week.
Bitcoin has dropped nearly 30% since reaching its all-time high in early October, leaving the digital asset market in a fragile state. The decline worsened when around $1 billion in leveraged bets were gone.
Are investors playing safe?
Crypto exchanges have seen an increase in the balances of stablecoins like USDT and USDC, suggesting that investors are choosing to hold cash instead of making aggressive bets on price drops, according to analysts at Bitfinex, reported Bloomberg.
The report added that this behaviour is common during late-stage market corrections when investors shift to stablecoins as a way to hedge their positions, waiting for more clarity on market conditions and external factors like ETF flows and macroeconomic uncertainty. Unlike at market peaks, when stablecoin liquidity tends to decrease, the current situation shows an increase in liquidity, indicating that investors are holding back and waiting for clearer signals before making further moves.
Further reflecting investor caution, CoinMarketCap’s Fear and Greed Index remained in the “extreme fear” zone on Tuesday, having been stuck in this range for the past three weeks.