Bitcoin (BTC-USD) crossed the $100,000 (£81,900) threshold three times before retreating slightly on Thursday. The rally comes amidst cooling US inflation data, as the December Consumer Price Index (CPI) report showed signs of easing pressures, and just days ahead of Donald Trump’s inauguration on 20 January.
Bitcoin briefly touched $100,000 but dipped to $99,500 on Thursday, according to Coingecko.
Ethereum (ETH-USD) surpassed $3,300, Solana (SOL-USD) rose above $200, and XRP (XRP-USD) was a standout performer with an 8% daily increase and a 34% gain over the past week.
Market optimism driven by Trump's pro-crypto proposals
Speculation about the incoming president’s pro-crypto policies, including a proposed "strategic bitcoin reserve" for the US government, has fueled excitement among market participants. The policy would involve the government purchasing and holding significant amounts of bitcoin, akin to the strategic petroleum reserve. Advocates suggest this could spark a global crypto race, with other nations following suit.
"The Trump administration features crypto-friendly personnel, and rumours that Trump will enact wide-ranging pro-crypto executive orders have provided a short-term tailwind for bitcoin," QCP Capital analysts said in a recent report.
Inflation data fuels risk-on sentiment
The December CPI report revealed that inflation continues to cool, with headline CPI holding steady at 2.9% year-over-year and core CPI easing to 3.2%. This marks the first decline in the core inflation rate since July and has bolstered hopes for a dovish pivot by the US Federal Reserve in 2025.
"With inflation continuing to cool, the stage is set for a favourable environment for bitcoin ahead of Donald Trump’s inauguration," 21Shares crypto research strategist Matt Mena said.
BitGo CEO Mike Belshe told Yahoo Finance's Morning Brief: “Everything is aligned to do well, and I think we're extremely well-positioned given the regulatory changes and the adoption that's been going on ... the industry is anticipating that this is going to be a good time for bitcoin.”
Ahead of Trump’s return to the White House, SEC Chair Gary Gensler — viewed by many as a staunch opponent of cryptocurrency — is set to step down. Trump has announced crypto advocate Paul Atkins as his choice to replace Gensler.
“Gary Gensler has, for some reason, decided to take a war against crypto,” Belshe said. “Mr Gensler wants to talk about use cases. Bitcoin is the strongest use case; it’s a store of value unlike any other. It’s a monetary system that serves as a hedge against the dollar because the government here has had a really hard time containing costs.
“Bitcoin is a monetary system where it’s a fixed supply, so you don’t have to worry about someone deciding to spend more money and create a bunch of extra supply that wasn’t anticipated.”
Bitcoin’s recent price rallies are attributed to a complex interplay of macroeconomic factors and growing institutional adoption, according to a recent report by Deutsche Bank.
“While the 2024 surge may reflect the culmination of these factors, both short-term catalysts and long-term structural changes influence bitcoin's trajectory,” Deutsche Bank analysts Marion Laboure and Galina Pozdnyakova stated.
They cautioned, however, that key risks remain, including the possibility of the Federal Reserve maintaining higher interest rates for longer and whether the Trump administration's promises to embrace and legitimise cryptocurrency might fall short of market expectations.
“A looser monetary policy environment and potential for Trump to overhaul crypto regulation have contributed to bitcoin’s surge,” they added.
Regulatory shifts anticipated under a Trump administration
The report highlighted the potential for regulatory shifts in the US under the Trump administration to serve as a catalyst for the cryptocurrency’s growth.
“The recent Trump victory has fuelled optimism, pushing the price above $100,000,” the analysts said. “The forthcoming appointment of Paul Atkins, a deregulation advocate, as SEC Chair signals a shift towards an innovation-friendly approach, prioritising clear regulatory guidelines for digital asset markets and reducing enforcement actions previously perceived as hindering crypto industry growth by the Biden administration.”
However, market observers warn of heightened volatility in the days surrounding Trump’s inauguration. "The volatility will come as markets digest and adjust to a new term under Trump," QCP Capital analysts noted. They cautioned that bitcoin remains vulnerable to downside risks, as the $90,000 level has been tested several times over the past week.
On the technical side, perpetual futures funding rates for bitcoin have increased, signalling growing market optimism. According to Coinglass, the open interest-weighted funding rate for bitcoin perpetual futures climbed to 0.01% during the latest eight-hour contract cycle across major exchanges.
The increasing funding rate means traders are increasingly betting on bitcoin's price going up, and they're paying a small fee to keep their positions open, which reflects growing confidence in the market.
Bitcoin’s rally is closely tied to broader economic trends. The S&P 500 (^GSPC), for example, is testing a critical resistance level near 5,950, adding to the bullish sentiment in risk assets.
"Bitcoin’s correlation with the Nasdaq 100 (^IXIC) is at a two-year high, making it highly reactive to CPI data and broader macroeconomic shifts," Jag Kooner, Bitfinex head of derivatives, said. "As crypto becomes more intertwined with traditional finance, it acts as a faster beta to shifts in the macroeconomic landscape."
Short liquidations have also surged during bitcoin’s recent rally. Coinglass data reveals that of the $85m in liquidated bitcoin positions over the past day, more than $57m were short liquidations.
