Illustration of Bitcoin

Bitcoin (BTC), the world's largest crypto asset by market capitalization, remains above the $25,000 price level as the market awaits news on inflation and spot Bitcoin ETF approval.

Historically, September has always been the worst month for BTC, with the king of crypto averaging a 6% decline in its value in the said month from 2010 until 2022. According to data from the stock market index Dow Jones, BTC has plummeted every September since 2017 until 2022.

"Trading activity and market participation tend to be lower during Q3, as this quarter includes the months of July and August which are historically the ones with very low volumes. In addition, the hiking of interest rates perpetuated by central banks in the last 18 months, strongly contributed to drying up liquidity from the financial markets and suggested a de-risk movement for investors. This impacted the whole financial sector, with a stronger effect on the digital asset market, being historically the most volatile and risky," Matteo Greco, Research Analyst at the publicly listed digital asset and fintech investment business Fineqia International, told International Business Times.

But, Bitcoin experienced a "short squeeze" early Tuesday morning when it jumped to nearly $26,000, attempting to reverse the decline at the beginning of the week, which traded below $25,000, representing a three-month low.

A short squeeze occurs when investors bet against a stock or crypto asset, but instead of plunging, its price shoots up.

The cryptocurrency volatility remains high as investors are apprehensive of FTX's plan to pay its creditors by liquidating its assets.

In its latest digital asset holdings report, FTX revealed that it has $3.4 billion of crypto assets, including around $1.16 billion of Solana, $560 million of BTC, and $192 million of Ethereum, aside from several other tokens.

The now-bankrupt crypto empire will seek the court's approval of its liquidation proposal this Wednesday.

But, while the broader cryptocurrency market is currently in a bearish cycle, two major factors could drive up the price of the world's largest crypto asset. These are the end of inflation and the approval of spot Bitcoin ETF applications.

Global markets are waiting for the U.S. inflation report scheduled to drop Wednesday, as another increase in the interest rate could pose a bigger investment risk.

"August inflation data for the US will be released on the 13th of September. The expectations are for a slight increase in year-on-year inflation, to 3.4% from 3.2% in July. However, the market does not expect any further increase in interest rates, pricing a 93% probability of no change in interest rates at the next Federal Open Market Committee (FOMC) meeting and also not predicting any further rate hike before the end of 2023," the Fineqia International research analyst said.

But Greco is optimistic that if the Feds end the rate hike and the U.S. Securities and Exchange Commission (SEC) approves the spot Bitcoin ETF filings, both could not only improve liquidity but also pave the way for new capital to flow into the market.

"The end of rate hikes, especially if combined with the approval of a Bitcoin Spot ETF, could represent a major driver to bring new capital into the market and improve liquidity. Investors are showing increasing confidence in the future approval of Spot ETFs," Greco said.

"The Grayscale Bitcoin Trust (GBTC) discount currently sits at around 17%, the lowest level since the beginning of 2022. Grayscale Ethereum Trust (ETHE) discount is strongly diminishing as well, now being at 26.50%, the narrowest discount in the last 12 months. The data concerning ETHE seems particularly relevant, as Grayscale did not file to convert any other trust other than Bitcoin in an ETF. The strong narrowing in ETHE discount shows how investors believe not only that approval for a BTC Spot ETF is more likely than before, but also that once GBTC is converted into an ETF, other Trusts will follow," he told IBT.

Greco also offered the long-term holder ratio of BTC supply, which, according to him, exceeded 75% of the crypto asset's total supply, with only 25% currently being held by short-term holders.

"Analysing the Bitcoin supply, the long-term holder ratio surpassed 75% of the total supply. Long-term holder refers to the part of the Bitcoin supply that did not move for more than 155 days. Currently, 75.66% of the total supply, equivalent to 14.74 million of BTC is held by long-term holders. Only 2.50 million BTC are held by short-term holders, the lowest data since 2011," he said.

As of 5:30 a.m. ET on Tuesday, Bitcoin was trading up at $25,789.74 with a 24-hour trading volume up by 103.88% at $18.33 billion, representing a 0.30% spike in the last 24 hours and a 0.4% gain over the past seven days.

Based on the latest data from CoinMarketCap, Bitcoin's total circulating supply stands at 19.48 million BTC, with its value up by 0.34% at a $502.65 billion market cap.