Crypto markets experienced a modest rebound on Friday, with Bitcoin recovering to $109,522.38, regaining its position above the $110,000 mark. Ethereum notably outperformed its peers, climbing 3.8% to cross the $4,000 threshold at $4,019.32. Other cryptocurrencies also saw gains, with Dogecoin rising by 3.4% to $0.2314 and Solana adding 2.5% to reach $203.28.
This cautious uptick in prices followed the release of inflation data that aligned closely with forecasts. The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index, indicated a year-over-year increase of 2.7% for August, while the core PCE, which excludes food and energy prices, rose by 2.9%. According to Fabian Dori, Chief Investment Officer at Sygnum Bank, the data reinforces the Federal Reserve’s narrative of gradually easing price pressures. However, it places policymakers in a delicate position as they balance persistent inflation with a softer labor market. “For investors, the implications are twofold,” Dori explained. “If inflation trends lower, risk assets may find support from confidence in the Fed’s easing cycle. However, any unexpected positive surprises in forthcoming data could delay short-term rate cuts, negatively impacting equities and boosting the U.S. dollar.”
Despite the temporary gains, sentiment within the crypto community remained fragile. The Fear & Greed Index, a widely recognized sentiment indicator, dropped to 28 on Friday, its lowest level since mid-April, which indicates a prevailing sense of fear among traders. This downturn followed a significant wave of liquidations totalling $1.1 billion that wiped out leveraged long positions just a day earlier. Strategist Matt Mena from digital asset manager 21Shares highlighted that approximately $3 billion worth of leveraged longs had been liquidated recently. He noted that this flushing out of excess leverage has resulted in an extremely bearish positioning, with popular tokens like BTC, SOL, and DOGE now displaying a long-to-short ratio of merely one-to-nine. This extreme sentiment, combined with the low Fear & Greed Index, sets the stage for a potential short squeeze, Mena argued.
Conversely, Paul Howard, senior director at trading firm Wincent, offered a more cautious viewpoint, suggesting that the market may drift lower before it stabilizes. He pointed out that Bitcoin dipped below its 100-day moving average under $110,000 and that the total crypto market capitalization has fallen below $4 trillion, which he interprets as signs of weakness. “The market is experiencing a healthy correction without panic or a significant uptick in volatility,” Howard remarked. “It is likely that we will grind lower in the coming weeks,” he added, expressing skepticism about whether the crypto space will revisit record highs in 2025.
