Bitcoin edged higher on Thursday but held below $85,000 in the aftermath of a significant spike in Treasury yields that strengthened the U.S. dollar and sapped investors' risk appetites.

The flagship cryptocurrency took a breather from its recent rally on investor jitters around the potential for further interest-rate rises, falling 2% on Wednesday. It had briefly punched above $87,000 for the second time this week before slipping to a low of $83,551 during the session.

In early European trading on Thursday, bitcoin was 0.3% higher at around $84,548.

Treasurys sold off significantly during U.S. trading hours, with yields rising 10-15 basis points. Meanwhile, the dollar reached an eight-week high against a basket of currencies as September's PMI prints came in higher than expected, driving traders' anticipation for more rate hikes by the Federal Reserve.

Even so, the mood among investors regarding bitcoin is broadly positive, with traders seeing the timing of its jump as a good sign for demand--which appears to be coming largely from ETFs, said Naeem Aslam of Zaye Capital Markets in a note. "Bitcoin's ability to hold...despite a recent 25-basis-point rate increase and stalled crypto legislation shows that institutional demand is currently offsetting some macro and regulatory headwinds," said Aslam.

Bitcoin ETFs posted a net inflow of more than $2.3 billion over four consecutive days, according to data from Coinglass released Wednesday.

Analysts say the next psychological price level for bitcoin is at $90,000. "We expect the $80,500 or so region to provide the first area of support and then for the $85,000 to $86,500 region to continue acting as resistance until the next range breakout is catalyzed," said analysts with Bitfinex in a note.