Bitcoin Sentiment Revives Despite Failed US Crypto Bill and Rate Hike, as Price Reclaims $85,000

Bitcoin reclaims $85,000 for first time in 8 months, up 10% in a week

$1 billion in net inflows to U.S. ETFs

Optimism builds ahead of U.S.-China summit

'20-year Bitcoin holding law' adds support

Overheated sentiment triggers 'extreme greed' warning

Bitcoin is rebounding through a series of headwinds. The cryptocurrency has held its gains even after the U.S. Congress failed to pass the Clarity Act, a market-structure bill for digital assets, and the Federal Reserve raised interest rates. Analysts attribute the resilience to growing expectations that Bitcoin could become a strategic asset for the U.S. government, while falling U.S. Treasury prices and lower oil prices have also improved the investment case for digital assets.

◇ Bitcoin jumps 10% in a week

According to global cryptocurrency data firm CoinMarketCap, Bitcoin traded at $86,597 as of 9 a.m. on September 22. That was up 6.7% from $81,143 the previous day. It climbed as high as $87,281 at about 5:30 a.m. before paring some gains. Later in the day, it was trading in the mid-$85,000 range. Bitcoin's return above $85,000 marked its first recovery of that level since January, ending an eight-month gap.

The recent rally has been steep. Bitcoin traded at $76,405 on September 18 and gained about $10,000 in four days. The pattern was similar in South Korea. Bitcoin traded at about $85,600 at 9 a.m. on September 22, up 5.4% from a day earlier. Compared with about $77,200 a week earlier, it was up 10.8%.

Institutional money has continued to flow in. Farside Investors said the 12 spot Bitcoin exchange-traded funds listed in the U.S. recorded net inflows of $999 million on September 21. That followed inflows of $159.5 million on September 17 and $433 million on September 18, extending the streak to three straight trading days.

Investor sentiment also improved rapidly. Alternative's Crypto Fear & Greed Index stood at 78 on September 22, putting it in the "extreme greed" zone. That suggests investor enthusiasm has risen to a near-overheated level. The index jumped eight points in a day from 70, which had indicated "greed."

◇ Inflation remains the biggest variable

Bitcoin, which had surged earlier this month, lost momentum after a run of negative developments. The Clarity Act was rejected in the U.S. Senate on September 15, dimming the chances of passage this year. The Fed's quarter-point rate increase on September 16 also weighed on the crypto market.

Markets appear to view much of that bad news as already priced in, helping Bitcoin extend its rise. The renewed decline in global oil prices has also eased concerns about high inflation. Optimism has spread across broader asset markets ahead of a summit between U.S. President Donald Trump and Chinese President Xi Jinping scheduled for September 24.

Expectations for further gains are also building. The U.S. House Financial Services Committee approved the Modernizing America's Reserves Act on September 16. The bill's central provision is to manage Bitcoin held by the U.S. government as a long-term national reserve asset. If enacted, the U.S. government would be required to hold Bitcoin secured as a strategic reserve asset for at least 20 years.

Still, macroeconomic risks remain. The war between the U.S. and Iran has not ended, and attacks on Saudi Arabia by the Iran-backed Houthi rebels have continued. The global tightening cycle, as governments raise benchmark interest rates, could also weigh on the market. Bitcoin prices generally move in the opposite direction of interest rates.

After such a sharp rise in a short period, profit-taking could also emerge. Kim Min-seung, head of research at Korbit, said many investors entered the market expecting a recovery, but the path of inflation will determine the direction of the crypto market. "A typhoon doesn't come just once and never return," he said.

Park Si-on, Hankyung.com reporter ushire908@hankyung.com