Bitcoin (BTC) has been on a strong rebound, trading above $97,000 on Wednesday after testing the critical psychological level of $90,000 earlier this week. This price rebound comes as traders prepare for potential volatility ahead of the upcoming US Consumer Price Index (CPI) data release. Soft inflation data, such as the latest US Producer Price Index report, has triggered a renewed appetite for riskier assets like Bitcoin. Investors are keenly watching the CPI data since it could impact the future interest rate decisions of the Federal Reserve.

Key Lookouts

•  Bitcoin rebounded, trading above $97,000, after testing the $90,000 psychological level early this week on expectations of more volatility before US CPI data.

•  The US Producer Price Index came in softer than expected, giving a boost to risk assets, including Bitcoin and pausing a rise in US Treasury bond yields.

•  Analysts expect potential expansionary policies under Donald Trump, including tax cuts, which could support risk assets, including Bitcoin, in the coming months.

•  Bitcoin’s technical indicators are showing bullish momentum, with the Relative Strength Index (RSI) above neutral and the MACD nearing a bullish crossover, signaling potential further price increases.

Recent inflation data, especially the US Producer Price Index for December, which indicated a slower-than-expected increase in wholesale inflation, has played a significant role in Bitcoin’s price action. This has again brought renewed interest in risk assets like Bitcoin, hinting at the possibility of softer inflation and possible rate cuts by the Federal Reserve. Softer inflation might alleviate some fears over rising interest rates and will provide a relatively better environment for Bitcoin to sustain its recovery process. As the US Consumer Price Index (CPI) data are due to be published, any signal of lower inflation might add strength to the upward pressure on Bitcoin.

Here are some of the important factors that make Bitcoin’s price action and its probable future movements in the market so interesting:

•  Bitcoin recovered strongly, rising above $97,000 after retesting the critical level on $90,000 last week. It may potentially enable more price appreciation.

•  Traders remain on high alert ahead of the release of the US Consumer Price Index data, which could have a profound impact on Bitcoin’s price action.

• The softer-than-expected US Producer Price Index (PPI) for December has improved the appetite of investors for risk assets such as Bitcoin, with hope that the inflation might have already peaked and interest rates might be cut by the Federal Reserve.

•  If the inflation data is within expectations, then the Federal Reserve may relax on its stance for interest rates, which can help in creating a more favorable environment for Bitcoin and other risk assets.

•  A report from K33 Research indicates that the expected expansionary economic policies of former President Donald Trump, including extending tax cuts and relief for working-class Americans, could positively impact risk assets like Bitcoin in the future.

•  Bitcoin has shown an increasing correlation with traditional equity markets, especially the Nasdaq, reflecting broader market sentiment and making Bitcoin more sensitive to movements in the stock market.

• Rising US 10-year Treasury bond yields and a strengthening US Dollar have squeezed Bitcoin’s price, which tumbled below $90,000 earlier this week before rebounding.

• On the technical front, Bitcoin shows positive momentum: its Relative Strength Index (RSI) is well above neutral and the Moving Average Convergence Divergence (MACD) is positive and rising, signaling an upward trajectory if the price continues to move upwards.

•  If Bitcoin can hold the recovery and close above $100,000, it could aim for a retest of its all-time high near $108,353. However, support is likely around $85,000 if the market correction continues.

The correlation between Bitcoin and traditional financial markets, especially the Nasdaq, has been increasing in recent months. As shown in the latest K33 Research report, Bitcoin has been trending in sync with the equity markets for the most part, especially in the event of market corrections. Treasury bonds and the US Dollar have recently exerted pressure on Bitcoin, sending it below $90,000. However, Bitcoin managed to rebound since then, which means most of the investor sentiment still remains positive for the digital asset.

BTC/USD Daily Price Chart

Source: TradingView, prepared by Jacob

The correlation of Bitcoin with the traditional financial markets, especially Nasdaq, has been rising lately. As has been observed from a recent report by K33 Research, Bitcoin has moved in tandem more with the trends of the overall equity market especially during periods of volatility. Pressure from rising Treasury bond yields and a stronger US Dollar has seen Bitcoin fall to below the $90,000 mark recently. However, Bitcoin has since rebounded, which indicates that investor sentiment towards the digital asset remains largely positive despite external pressures.

Technical Analysis

Bitcoin is currently exhibiting bullish momentum and trading above $97,000. The Relative Strength Index is at 52, which is an indication of growing upward pressure, and the Moving Average Convergence Divergence is near a bullish crossover, meaning the price might go up. Immediate resistance is around $100,000, with a break above this level targeting the all-time high of $108,353. Key support lies around $90,000 and further near $85,000 if the price faces any correction.

Support and Resistance Forecast

The primary support area is at around $90,000, a major psychological level which previously had provided a bounce in the past. It’s expected that, if the price breaks below this level, the main next support would be at $85,000, which might help limit declines further. A sustained move below $85,000 may indicate deeper bearish momentum towards $80,000, thus becoming significant levels to determine the price action of the Bitcoin in its short term and may be directing the purpose of any potential recovery process.

The immediate resistance for Bitcoin is at the $100,000 level, which is a psychological barrier. If Bitcoin breaks above this level, the next significant resistance is seen near the all-time high of $108,353. A breakout above this level could push Bitcoin toward new highs, potentially targeting $115,000 or higher. Traders should watch for a sustained move above $100,000 to confirm further bullish momentum, with $108,353 acting as a critical test for the continuation of the uptrend.