Bitcoin BTC$70,089.91 has clawed its way back above $70,000, recovering from a sharp drop near $60,000 earlier in the month.

The cryptocurrency is up nearly 5% in the last 24-hour period, while the broader CoinDesk 20 (CD20) index rose 6.2% in the same period.

The rebound comes as investors react to a cooler-than-expected U.S. inflation print and signs of renewed risk appetite. The Consumer Price Index for January rose 2.4% year-over-year, just below the forecasted 2.5%.

That gave markets a reason to believe interest rate cuts could arrive sooner than expected, lifting both stocks and cryptocurrencies. Lower interest rates make risk assets more attractive, as the rate of return on risk-free or low-risk investments lowers.

Traders on prediction market Kalshi are currently weighing a 26% chance of a 25 bps rate cut in April, up from 19% earlier in the week. On Polymarket, the odds rose from 13% to 20%.

Still, the rally masks deeper fractures beneath the surface.

The Crypto Fear & Greed Index continues to reflect deep anxiety, hovering near extreme fear levels last seen during the 2022 bear market over the collapse of FTX. The index has been sitting in “extreme fear” since the beginning of the month.

Bitwise analysts noted that $8.7 billion in bitcoin losses were realized in the last week, second only to the fallout from the 3AC collapse.

“Nevertheless, the rotation of supply from weaker hands to conviction investors has historically been associated with market stabilisation phases, though such redistribution requires time to fully unfold,” Bitwise wrote.

Bitcoin treasury firms were sitting on over $21 billion of unrealized losses, an all-time high. Bitcoin’s recovery has seen that figure drop to $16.9 billion.

Thinner trading volumes are supporting the current rally during the weekend and seller exhaustion. The $8.7 billion in realized losses in the last week could be seen as a “textbook capitulation event.”

Yet, the extreme fear gripping the market poses a challenge. AS Bitwise research analyst Danny Nelson told CoinDesk, the market’s “main driver right now is fear. Fear that we’ll go lower.”

That fear is seeing investors take any coming rally as a chance to sell. Whether that will keep on materializing or the shift to higher-conviction holders will see the market change directions remains to be seen.