Bitcoin is back – What's driving the rally?

Bitcoin builds on recent rally as optimism returns

The crypto market's recovery gathered pace this week, with Bitcoin briefly breaking above the psychologically important $80,000 level and reaching its highest price since mid-May as optimism returned to a sector that had spent much of the past ten months under pressure. The world's largest cryptocurrency surged from below $63,000 earlier this month to a peak above $81,000, recording its strongest weekly gain in more than three years.

The latest advance has also translated into an impressive monthly performance. Bitcoin has gained roughly 25% in August, marking its best month since November 2024, when Donald Trump's re-election and pro-crypto stance helped propel digital assets higher.

Dollar-debasement trade brings Bitcoin back into favour

The rally came amid a confluence of factors. A more supportive bond-market backdrop has been one catalyst, with investors assessing the implications of the US Treasury's expanded long-dated bond buyback programme for the dollar, yields and alternative stores of value, helping revive the so-called dollar-debasement trade.

Bitcoin was originally designed as an alternative to fiat currencies and has increasingly benefited alongside gold as investors seek stores of value amid concerns over a weaker greenback and rising government debt. Indeed, Bitcoin's correlation with gold has strengthened noticeably in recent weeks, as noted in the latest Bitcoin report, with both assets emerging as beneficiaries of the same macro narrative.

Regulatory optimism returns

The rally has also been supported by improving regulatory sentiment. Renewed institutional demand has coincided with growing expectations for a clearer US regulatory framework for digital assets following supportive signals from both the SEC and President Trump. Last week, the SEC proposed measures to ease certain requirements for digital asset offerings, while Trump hosted crypto industry leaders at the White House and reiterated support for a more industry-friendly framework. Together, the developments suggest the sector could gain greater regulatory clarity regardless of the fate of the Clarity Act, the key market structure bill, which remains stalled in the Senate ahead of a September 15 vote.

That said, whether the latest bout of regulatory optimism can be sustained remains unclear. The regulatory backdrop is arguably the most supportive it has ever been, yet digital assets have spent much of the past year trading near cycle lows.

Winter's end? Greed returns to crypto markets

The latest recovery has fuelled speculation that crypto winter may finally be coming to an end and, conversely, that a new bull cycle could be taking shape. Sentiment indicators certainly point in that direction, with the Crypto Fear & Greed Index surging to 80, its highest reading since shortly before October's $19 billion market wipeout, after standing at just 27 less than two weeks ago. The sharp jump highlights how quickly investors have shifted from caution to chasing risk, yet the sustainability of the rally remains to be seen.

However, some caution remains warranted. A significant part of the recent advance was amplified by the largest crypto short squeeze since 2021, raising questions about how much of the move reflects genuine demand rather than forced buying. At the same time, Bitcoin's rally above estimated mining costs could encourage some miners to monetise holdings and reduce risk, potentially creating a new source of supply. As such, confirmation of a new bull market will likely depend on whether institutional inflows, regulatory progress and broader capital flows continue to underpin demand once the effects of the short squeeze begin to fade.

Altcoins lead August rally, but Bitcoin remains crypto king

As sentiment improved, the crypto market staged a broad August recovery, with Cardano, XRP, Ether and Solana emerging among the strongest performers, as illustrated in the chart. It seems that several major altcoins have outpaced Bitcoin during the latest rebound as investors embraced greater risk.

However, the move has yet to evolve into a full-fledged altcoin season. Bitcoin dominance, which measures Bitcoin's share of the total crypto market, recently climbed to around 61% before easing towards 59%, remaining near its highest level of the year. Meanwhile, the widely followed Altcoin Season Index stands near 39, well below the 75 threshold associated with a genuine altcoin-led market.

In short, while altcoins have led August's gains, Bitcoin continues to drive sentiment and remains firmly in the driver's seat.

August rally breathes life into crypto markets as ETF inflows return

Bitcoin's dominance has also been reflected in institutional demand. US-listed spot Bitcoin ETFs recorded their strongest weekly inflows in roughly 10 months, attracting $1.92 billion last week. Month-to-date inflows have exceeded $3 billion, marking the strongest period of demand since last year's post-crash recovery.

Ether ETFs have also enjoyed their best month in a year, attracting more than $1 billion in net inflows during August. The renewed demand suggests institutional investors are once again increasing exposure to the asset class after months of caution.

Adding to the constructive backdrop, Strategy recently established a new $1.59 billion cash reserve that can be used to purchase Bitcoin, preserving the possibility of renewed corporate buying after a pause in acquisitions.

What's next? BTC/USD steadies beneath 50-week moving average

Attention now turns to inflation and growth data, Nvidia earnings and Fed Chair Kevin Warsh's speech at Jackson Hole, all of which could influence risk sentiment.

From a technical perspective, Bitcoin is approaching its 50-week moving average near $81,000, a closely watched level. A sustained break above it would strengthen the bullish case and put the May highs back into focus. Beyond that, a move through $90,000 could bring this year's peak near $98,000 back into view. For now, the RSI has begun to ease from overbought territory, suggesting the market may be taking a breather after its blistering advance before deciding on its next direction.