BTC price surge: Will inflation relief keep Bitcoin above $90K?

Bitcoin (BTC) has staged a dramatic recovery, climbing back above the $90,000 mark after a volatile start to the year. On Tuesday, the flagship cryptocurrency surged 3% to $96,452.34, according to Coin Metrics, reversing its earlier slide below $90,000. The broader cryptocurrency market mirrored this momentum, with stocks tied to crypto, including Coinbase and MicroStrategy, rose 1% and 4%, respectively, though they trimmed their gains later in the day.

Inflation relief bitcoin recovery

Bitcoin’s recent rebound coincided with encouraging news on inflation. The Bureau of Labor Statistics reported that the producer price index (PPI), a key measure of wholesale inflation, increased by only 0.2% in December-half the 0.4% rise economists had anticipated. 

Monthly change in US Producer Price Index

Input prices rose 0.2% in December

This lower-than-expected inflation reading eased fears of aggressive monetary tightening, spurring a renewed appetite for risk assets, including cryptocurrencies. Despite the BTC price recovery, the cryptocurrency market remains in a precarious position. 

Investors are balancing optimism about pro-crypto leadership under the incoming Trump administration with concerns about inflationary pressures. January has already proven more turbulent than expected, and analysts predict this volatility could persist through the first quarter.

Last week, Bitcoin’s drop below $90,000 was fueled by unexpectedly strong payroll data, which pushed bond yields higher and led to a sell-off in risk assets. Meanwhile, proposed tariffs by President Trump unsettled markets, strengthening the U.S. dollar-an outcome that typically weighs on Bitcoin given its inverse correlation with the dollar.

Institutional investors stay in despite bitcoin’s volatility

Institutional investors continue to play a pivotal role in Bitcoin’s market dynamics. MicroStrategy, a corporate giant in Bitcoin investments, recently added 2,530 BTC to its holdings, bringing its total to 450,000 BTC-valued at approximately $43 billion. This steadfast accumulation underscores the confidence institutional players have in Bitcoin’s long-term potential, even in the face of short-term market pressures.

Fundstrat’s Tom Lee has suggested that Bitcoin could see a temporary correction to $70,000 before reaching new record highs later in the year. Lee’s optimistic year-end forecast of $200,000 to $250,000 highlights the cryptocurrency’s characteristic volatility during bull runs.

Derivatives signal bullish bitcoin sentiment

In the derivatives market, signs of optimism abound. Bitcoin futures contracts are trading with an annualized premium of 11%, well above the neutral 5%-10% range, indicating strong institutional demand. Meanwhile, retail investors are also showing confidence, as evidenced by positive funding rates for perpetual Bitcoin contracts. These metrics suggest that both institutional and retail traders remain committed to Bitcoin, despite macroeconomic uncertainties.

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BTC’s technical outlook: Challenges loom ahead

While Bitcoin’s recovery is promising, analysts note that it faces significant headwinds. According to analysts, macroeconomic factors, including inflation, geopolitical risks, and potential policy changes under the Trump administration, will continue to influence market sentiment. Adding to this complexity, the U.S. Department of Justice plans to sell $6.5 billion worth of Bitcoin seized from the Silk Road, a move that could temporarily increase market supply and exert downward pressure on prices.

As Bitcoin hovers near $96,000, traders are closely monitoring its ability to maintain this momentum. The cryptocurrency has risen 3% year-to-date but remains 10% below its December 17 all-time high. The interplay of macroeconomic pressures, institutional confidence, and policy developments will be pivotal in shaping Bitcoin’s trajectory in 2025.

Despite the challenges, Bitcoin’s long-term potential remains compelling. The battle to stay above $90,000 encapsulates the broader market forces at play, highlighting both the opportunities and obstacles in Bitcoin’s ongoing evolution.

At the time of writing, analysts note that BTC is hovering around $96,000 as markets remain volatile.  The buy narrative is supported by RSI slowly up above the mid-line as prices stay above the 100-day moving average. Prices rising towards a recent sell zone however could hinder the continuation of the rally. Buyers could be held at the $97,683 and $99,904 resistance levels, while on the other hand, sellers could find support at the $94,450 and $92,530 support levels.

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