Bitcoin Surges 2% to $87,000 Amid Institutional Inflows

Bitcoin's price recently experienced a notable surge, briefly breaking above $87,000 before retreating. This short-term spike is significant as it indicates a potential shift in market sentiment, despite the broader risk-off environment. The cryptocurrency's price movement comes amid heightened correlations with other risk assets, reflecting a broader market sentiment influenced by various economic factors.

The recent price action has been influenced by several key events and indicators. Bitcoin faced resistance around its 200-day Exponential Moving Average (EMA) at $85,500, and a firm close above this level would suggest a potential recovery. The US spot Bitcoin Exchange Traded Funds (ETFs) have recorded inflows for the second consecutive day this week, signaling a reduction in sell-side pressure. This inflow of institutional capital is a positive sign for Bitcoin's price, as it indicates growing confidence among large investors.

However, the market remains cautious ahead of the Federal Open Market Committee (FOMC) meeting. The upcoming FOMC meeting is unlikely to meaningfully shift the current dynamic, as the market is fully aligned on no changes to the interest rate despite easing inflation pressures and a slight increase in the US unemployment rate. The market is pricing in a higher likelihood of cuts in the coming FOMC meetings, with market-implied probabilities suggesting a 22% chance of a 25 basis point (bps) cut in May, rising to 56.3% by June. These odds point toward considerable volatility as the market absorbs the dot plot and forward guidance from Federal Reserve Chair Jerome Powell during the FOMC press conference.

The broader economic environment also plays a significant role in Bitcoin's price movements. Concerns about an economic slowdown have contributed to lowering the 10-year Treasury yield, which has been an outspoken target for US Treasury Secretary Scott Bessent, aiming to reduce the 6.7% US deficit to GDP. The current fiscal measures dampen the economy in the short term, with Bessent viewing these measures as a detox from a market hooked on government spending. Amid this detox, markets have slipped, and investors seem to shy away from risk for now.

Geopolitical events and decisions related to ongoing conflicts may also have a stronger impact on Bitcoin’s price than developments in the US market. Gold has recently hit an all-time high, reinforcing its status as a safe-haven asset. As a result, any potential geopolitical turmoil may push Bitcoin’s price down into a lower range.

Despite the short-term volatility, Bitcoin's price could see further recovery if the inflow of institutional capital continues and intensifies. The Relative Strength Index (RSI) indicator suggests a lack of momentum on the daily chart, consolidating below its neutral level of 50. However, the lower low in the Bitcoin price formed on March 11 does not reflect the RSI higher high for the same period. This development is termed a bullish divergence, often leading to a trend reversal or short-term rally. If bullish divergence plays a part and BTC closes above its 200-day EMA at $85,502, it could extend the recovery to $90,000. However, if BTC corrects and closes below $78,258, it could extend the decline to retest its next support level at $73,072.

In summary, Bitcoin's short-term break above $87,000 is a significant development that reflects a potential shift in market sentiment. However, the broader economic environment and upcoming FOMC meeting introduce considerable volatility, and investors remain cautious amid heightened correlations with other risk assets. The inflow of institutional capital and potential bullish divergence on the RSI indicator suggest that Bitcoin's price could see further recovery, but the market remains uncertain and volatile.