Bitcoin Is Back Up. Is the Leading Cryptocurrency's Slump Over?

It's already been a wild year for Bitcoin (CRYPTO: BTC), and it's only been four months. Bitcoin soared to a new all-time high of $109,000 ahead of President Donald Trump's inauguration, briefly dipped below $75,000 after new tariffs were announced, and recently regained the $95,000 price level for the first time since February.

For the year, Bitcoin is little changed, up a modest 2%. So let's pump the brakes a bit before declaring that Bitcoin is fully back. There are three key factors to keep in mind.

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Investor sentiment

For better or for worse, Bitcoin is highly dependent on investor sentiment. This year has been a perfect example of this. Heading into the year, all lights appeared to be flashing green with a pro-crypto Trump presidency, and the price of Bitcoin skyrocketed in value. Crypto investors were already taking victory laps in late January.

But now look at investor sentiment. The Crypto Fear & Greed Index sits at 52, or about right smack dab in the middle of the 0-100 scale. Essentially, half of all investors are feeling nervous and anxious about Bitcoin, while the other half are feeling upbeat and giddy about Bitcoin.

Typically, a sustained rally for Bitcoin requires the Fear & Greed Index to hit stratospherically high levels, such as after the election, when the index reached 88. So we're nowhere close to that yet.

It is impossible to ignore just how quickly investor sentiment about Bitcoin has recovered. Back in March, for example, the Fear & Greed Index was giving a reading of less than 20. So a "neutral" reading of 52 is a huge improvement.

What do prediction markets think?

Another clue about Bitcoin comes from online prediction markets. For example, if you take a look at the Kalshi online prediction market, it's possible to see what investors think about the chances of Bitcoin hitting a variety of different price levels.

Right now, investors say, Bitcoin has a 46% chance of hitting $125,000 this year, and a 29% chance of hitting $150,000. Not bad, right? But investors also say that Bitcoin has a 43% chance of dropping below $70,000 and a 29% chance of dropping below $60,000.

Image source: Getty Images.

In short, investors think Bitcoin is just as likely to soar to $125,000 as it is to fall to $70,000. Now that it has nearly regained the psychologically important $100,000 price level, Bitcoin will likely trade in a relatively narrow range until the end of the 90-day delay in Trump's tariff adoption.

If a number of trade deals emerge by then, Bitcoin could pop. But if the U.S. economy worsens and no trade deals are signed, then all bets are off.

Bitcoin ETF inflows

One of the best metrics for tracking Bitcoin these days is exchange-traded fund (ETF) inflows into the spot Bitcoin ETFs. When Bitcoin was soaring at the beginning of the year, investors were rushing to put money into these ETFs hand over fist. Then, when tariffs started to roll out, investors were rushing to pull money out of these ETFs.

Makes sense, right? Trading these ETFs is as easy as trading a tech stock, giving investors a powerful tool for increasing or decreasing their exposure to Bitcoin with a single click.

The good news is that ETF outflows from earlier in the year appear to be reversing, with money now headed back into the spot Bitcoin ETFs. The most obvious reason is that investors are looking for safe assets these days, and Bitcoin -- as a global, non-sovereign, and non-dollar-denominated asset -- is starting to look pretty good.

Is the Bitcoin slump over?

For now, it appears that the worst of Bitcoin's slump is over. Investor sentiment is improving, Bitcoin ETF inflows are rising, and nearly half of investors think Bitcoin could hit $125,000 this year.

Of course, that's a much more modest price target than many investors had back in January, but I'm guessing many crypto investors would take it right now, given how volatile the broader markets have been this year.

Keep in mind: Bitcoin is an extremely volatile asset, and just because its current slump is over doesn't mean that volatility is going to disappear. If you're thinking about investing in Bitcoin this year, buckle up, because this is going to be a rocky ride.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.