Crypto Market Rebounds as Inflation Data Eases, Sentiment Remains Cautious

Bitcoin (BTC) and major altcoins saw a modest rebound on Friday, with Bitcoin trading at $109,279.53, briefly climbing back above the $110,000 mark. Ethereum (ETH) outperformed, gaining 3.8% to cross $4,000 at $4,016.58. Other altcoins also advanced, with Dogecoin (DOGE) rising 3.4% to $0.2310 and Solana (SOL) up 2.5% at $200.30.

The move followed the release of U.S. inflation data that aligned with expectations, easing concerns of further monetary tightening. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, increased 2.7% year-over-year in August. Core PCE, which excludes volatile food and energy prices, came in at 2.9%. Analysts said the figures reinforced the Fed’s outlook of gradually cooling price pressures, but policymakers remain cautious given ongoing inflation risks and a softening labor market.

Fabian Dori, CIO at Sygnum Bank, noted that if inflation continues to trend lower, risk assets like cryptocurrencies may benefit from confidence in the Fed’s eventual easing cycle. However, stronger-than-expected data in the months ahead could delay anticipated rate cuts, boosting the U.S. dollar and weighing on crypto valuations.

Despite the rebound, market sentiment remained weak. The Crypto Fear & Greed Index dropped to 28, its lowest level since April, reflecting heightened fear among traders. The decline followed a $1.1 billion wave of liquidations on Thursday, which erased roughly $3 billion in leveraged long positions over recent days. Matt Mena of 21Shares suggested this extreme bearish positioning could set up conditions for a short squeeze, as long-to-short ratios on popular tokens like BTC, SOL, and DOGE have fallen to just one-to-nine.

Still, some analysts remain cautious. Paul Howard of Wincent highlighted Bitcoin’s dip below its 100-day moving average and the broader crypto market cap slipping under $4 trillion as signs of weakness. He expects markets could drift lower in the coming weeks, questioning whether cryptocurrencies will revisit record highs in 2025.

At present, the crypto market appears to be undergoing a healthy correction rather than a panic-driven selloff, but investor caution remains high.