Cryptocurrency markets experienced a modest recovery on Friday. Bitcoin (BTC) climbed back above the $110,000 mark. Ethereum's ether (ETH) led the gains with a 3.8% increase, pushing its price back over the key $4,000 level. Other major altcoins like Dogecoin (DOGE) and Solana (SOL) also saw positive movement, rising 3.4% and 2.5% respectively.
This cautious uptick coincided with the release of the latest U.S. inflation data, which met economist expectations. The Federal Reserve's preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) index, showed a 2.9% year-over-year increase for August.
According to Fabian Dori, Chief Investment Officer at Sygnum Bank, this data supports the Fed's view of gradually cooling inflation but presents a challenge for policymakers balancing persistent price pressures against a softening labor market.
"For crypto investors and traders, the implications are dual," Dori explained. "Lower inflation trends could support risk assets like Bitcoin and Ethereum through confidence in potential Fed rate cuts. However, any unexpected data strength could delay easing measures, potentially strengthening the U.S. dollar and pressuring digital assets."
Crypto Market Sentiment Shifts to Fear
Despite the price gains, overall crypto market sentiment remains weak. The widely monitored Crypto Fear & Greed Index dropped sharply to 28, entering "Fear" territory for the first time since mid-April. This sentiment shift follows significant market volatility, including a $1.1 billion liquidation event that wiped out leveraged long positions.
Matt Mena, a strategist at digital asset manager 21Shares, noted that approximately $3 billion in leveraged long positions have been liquidated recently. This has pushed market positioning to an extremely bearish extreme, with popular cryptocurrencies like BTC, SOL, and DOGE now showing a long-to-short ratio of just 1:9.
Mena suggests that this overly pessimistic positioning, combined with the low Fear & Greed reading, "creates conditions ripe for a potential short squeeze," which could lead to a sharp price rebound.
In contrast, Paul Howard, Senior Director at trading firm Wincent, offered a more cautious outlook. He warned that the market may continue to drift lower before finding stability, pointing to Bitcoin's price falling below its 100-day moving average and the total crypto market capitalization dropping under $4 trillion as technical signs of weakness.
"We are seeing a healthy market correction without panic or a major spike in volatility," Howard stated. "It is probable that we see a gradual decline in the coming weeks," adding that he is beginning to question whether cryptocurrencies will reach new all-time highs in 2025.