Bitcoin closed last week at approximately $104,128, marking a 10.5% increase from the prior week’s close of around $94,280. There was strong demand for BTC and the broader digital assets market throughout the week, with Thursday standing out as the most bullish day. On that day, BTC surged by around 6.4%, breaking above the $100,000 mark for the first time since early February.

To a certain extent, this positive momentum was also reflected in BTC spot ETFs. About $600 million in net inflow were recorded in the past week, meaning the fourth consecutive week of net inflows in BTC spot ETFs. As a result, total net inflows since their inception have now surpassed $41 billion for the first time.

Bullish sentiment wasn’t limited to Bitcoin. The rally extended across the digital asset space, notably to Ethereum (ETH). After several weeks of negative performance, ETH rose 39%, moving from $1,809 to $2,515 by week’s end. Despite the strong price rebound, ETH spot ETFs saw modest outflows, totalling around $55 million last week.

“The scale and strength of the price recovery, combined with the light outflows from ETH ETFs and relatively moderate BTC ETF inflows, suggest that the recent surge in digital asset prices has been primarily driven by crypto-native activity, rather than institutional inflows via ETFs,” explained Matteo Greco, a senior associate with Fineqia International in Canada.

What’s driving the rally in cryptocurrencies?

One of the key drivers behind this risk-on rally appears to be easing geopolitical and economic tensions globally. In particular, the US and UK recently announced a trade agreement that would reduce tariffs on a selection of British-made cars and allow limited quantities of steel and aluminium into the US tariff-free, while maintaining overall trade tariffs at 10%.

Additionally, Donald Trump announced that constructive discussions had taken place between the US and China in Switzerland, suggesting that the two nations may be moving closer to an agreement aimed at de-escalating tensions and potentially ending the ongoing trade war. A resolution here could significantly reduce the global economic strain that has stemmed from these commercial frictions.

Meanwhile, the US labour market remains resilient, prompting the Federal Reserve to hold interest rates steady in its latest meeting. The Fed also confirmed that a reduction in Quantitative Tightening is not currently being considered, citing strong economic data as the reason for maintaining its policy stance.

As a result, market expectations for Fed rate cuts in 2025 have been revised downward. The market now sees an equal probability of 50 or 75 basis points of rate cuts, compared to previous forecasts of 75 or even 100 basis points just a few days earlier.

“While no single factor stands out, there have been key developments,” said Nick Forster of Derive.xyz. “The China/US trade deal announced by the White House has signaled a potential cooling in the trade war, providing a boost to the market. ETH’s Pectra upgrade successfully launched, aiming to improve user experience and attract institutional interest, which is likely contributing to ETH’s price surge.”

In addition Coinbase was added to the S&P 500. This milestone highlights the growing mainstream adoption of digital assets, signaling increased confidence in the sector.

Crypto traders are focused on the Fed

This shift in expectations is largely due to the combination of positive developments in US-China trade talks, continued labour market strength, and stable inflation readings. Together, these factors point to an economy that may be able to sustain higher interest rates without faltering.

Earlier projections assumed that rising inflation, driven by Trump’s anticipated tariff increases, would force the Fed into action. However, the recent diplomatic progress with China has dampened inflation expectations, reducing the urgency for policy easing and alleviating fears of a full-blown commercial war.

At the same time, a stronger-than-expected US economy allows the Fed to keep rates elevated without risking a sharp decline in consumption or investment. The previously looming fear of stagflation, where high inflation is paired with sluggish economic growth, appears to be receding, thanks to both favourable domestic indicators and improving global relations.

It’s important to note, however, that final agreements have not yet been signed, and the situation could still shift quickly if negotiations take a different turn. Nonetheless, current conditions are much more optimistic than those seen just a few days ago, offering a more constructive outlook for both the global economy and risk-on assets like cryptocurrencies.

Forster at Derive.xyz traders are positioning for heightened volatility – 46.7% of all BTC premiums are calls bought, and 37.7% are puts over the past 24 hours (Monday), indicating mixed market sentiment but with traders betting on significant price moves.