Bitcoin rallies to $21,000: What fueled the jump, how are experts reacting and where is BTC headed next?

There is a combination of factors at work here. But perhaps, one of the most prominent reasons behind the rally could be the release of the latest Consumer Price Index (CPI) report in the U.S.

The CPI report sheds light on the change in the prices paid by urban consumers for different types of goods and services. The latest CPI report was released on Jan 12, and it indicates that CPI declined from 7.1 percent in November to 6.5 percent in December.

This means that inflation has come down towards the end of 2022. It could also prompt the US government to slow down its aggressive interest rate hikes in the coming months. And this could help buoy BTC prices.

Another strong reason for BTC’s latest price spike is the dropping Dollar Index (DXY). For the unacquainted, DXY is a measure of the strength of the U.S. dollar with respect to a basket of six foreign currencies, namely the euro, the French franc, the German mark, the Italian lira, the Belgian franc and the Dutch guilder.

On Jan 12, just before BTC could begin its march to the $21,000 mark, DXY dropped from 112.072 to 110.846 points. It has been observed that BTC and DXY are closely co-related in an inverse relationship. That means, when DXY falls, Bitcoin increases and vice versa.

This trend can be seen almost throughout 2022, with the DXY and BTC graphs looking like mirrored images of each other over the last few months.

Moreover, many macroeconomic factors indicate that global inflation rates were slowing down, thereby resulting in an improvement in the global economy. Investor sentiments have also improved quite a lot, especially since China opened up international borders.

On top of that, giant companies in the financial services sectors such as Morgan Stanley, BlackRock, MicroStrategy, and others have been accumulating Bitcoin and increasing their holdings. Their stance on BTC has been bullish all the way and hence this kind of whale accumulation has helped support BTC prices.

Finally, FTX's restructuring team announced that they had recovered $5.5 billion worth of liquid assets so far and they were working on clawing back some more in the coming months.

While the majority of experts feel that it is too early to say whether the bear market is finally over or not, most of them agree on one this: market sentiment has improved quite a bit.

The latest CPI report, decreasing inflation rates, and FTX's announcement that the company has managed to recover $5.5 billion worth of assets, etc. have affected investor sentiments positively. Therefore, although the market is still bearish, there is a lot of positive momentum.

Over the past week, Bitcoin has gained over 24 percent. This strong rally has caused the popular “Bitcoin Fear and Greed Index” to reach a neutral position at 52 on Sunday for the first time in nine odd months.

However, at the time of writing, the index was back to 45 which indicates that Fear is still dominating, and full confidence is yet to be attained. However, it is a massive development from the previous week’s 25, which meant ‘extreme fear’ according to the index.

Experts are also divided on where BTC might go from here. Analyst Benjamin Cowen stated that Bitcoin is the best bet for crypto investors. According to the Bitcoin Dominance Index (BTC.D), he believes that the dominance of BTC in the crypto market will continue to peak no matter how BTC performs.

He believes that given the regulatory status of the global crypto market, altcoins will likely face more constraints from regulators than BTC. This is one of the top reasons why he believes BTC will continue to grow and prevail. However, he believed that Bitcoin must break out of the $23,000 resistance level to establish confidence among investors.

On the flip side, popular crypto commentator, Il Capo of Crypto described the recent rally as “one of the biggest bull traps” he has ever seen. According to him, BTC is going to bottom out at $12,000 before the bulls take over. “Despite the recent bounce, the bearish scenario hasn't been invalidated.

If you have made profits during these days, my sincere congratulations, but remember that it's not a bad time to protect these profits,” he wrote in a detailed Twitter thread that explains his point of view.

Bitcoin’s RSI (Relative Strength Index) backs this notion. At the time of writing, BTC’s RSI was hovering around 88, which is an overbought territory. RSI analysis shows that, if BTC starts price correction, then there is a possibility for a downtrend. Moreover, if the U.S. Dollar Index improves, risky assets like BTC can witness a sell-off.

It seems like the crypto industry is slowly forgetting about the disasters of 2022. Most coins are in the green since the start of 2023, a majority have even recorded double-digit gains. The global cryptocurrency has also pulled out of the $880 billion range and is slowly inching its way back to the $1 trillion mark. And BTC’s sudden climb to $21,000 was the cherry on the cake for Bitcoin proponents.

However, with mixed opinions coming from experts, the future of the world’s oldest cryptocurrency seems a bit uncertain. Therefore, it is always important to do your own thorough research and invest only as much as you can afford to lose completely.