Bitcoin traded up to $68,500 overnight before dropping below $66,000 during U.S. afternoon hours. The reversal tracked a firmer dollar and hawkish Federal Reserve minutes, highlighting fragile rallies in the cryptocurrency.

Bitfinex analysts called the market ripe for wave-like moves rather than sharp breakouts. “In this environment, volatility remains likely,” the firm stated in a research note. “Tactical upside moves can occur when positioning becomes overly defensive, but a durable structural advance will require clearer confirmation from both macro disinflation trends and sustained spot demand.”

Cooling headline inflation has lifted expectations for three Federal Reserve rate cuts this year. That shift echoes past patterns where looser policy bolsters risk assets like bitcoin. Financial conditions in crypto have eased slightly after months of strain, hinting at liquidity’s gradual return.

The Fed shows no signs of aggressive easing, though. Officials favor a cautious path to rebuild reserves slowly. Bitcoin may rally on tactics in such conditions but often fails to sustain gains.

Spot buying recoveries face consistent selling pressure. Bounces now absorb more smoothly than earlier this quarter, pointing to some market stabilization. Still, intraday swings expose weakness. Bitcoin’s price action mirrors the dollar’s recent strength, said Alex Kuptsikevich, chief market analyst at FxPro.

“It is alarming that Bitcoin’s dynamics mirror the recent strengthening of the dollar,” Kuptsikevich wrote in an email. “When investors become convinced that the rise of the dollar is a trend, there may be a sharp increase in volatility.”

Bitcoin lags stock benchmarks in volatility. U.S. indexes like the Dow Jones, Russell 2000 and Nasdaq 100 draw dip-buyers backed by key moving averages—the 50-day for the Dow and Russell, the 200-day for Nasdaq. Bitcoin sits 17% below its 50-day moving average and 31% under its 200-day, Kuptsikevich noted.

Sentiment stays brittle. A crypto fear index hit single digits on nine of the past 14 days, levels uncommon outside deep bear phases. Glassnode data reveals stablecoin outflows from major exchanges, tightening liquidity. Long-term holders display stress akin to late 2022 bear market lows.

Improving macro signals clash with persistent supply hurdles. Bitcoin could climb tactically if traders grow too pessimistic. A true run higher needs disinflation proof, dollar softening, reliable spot demand, plus relief from stablecoin drains and holder pressures.

Until those align, upside paths will stay choppy. Traders watch Fed moves and dollar trends closely for the next cues.