Bitcoin's Upsurge Meets Pentagon Warning on Inflation

Just as bitcoin seemed poised to break through the $80,000 barrier, macroeconomic uncertainty has resurfaced as a significant obstacle. The Pentagon recently informed U.S. lawmakers in a classified briefing that demining efforts in the Strait of Hormuz, a crucial oil supply route, may take at least six months and will only commence after the U.S.-Iran conflict is resolved. Additionally, the briefing warned that gasoline and oil prices may remain elevated until the midterm elections, according to the Washington Post. This could lead to persistent inflation, limiting the Federal Reserve's ability to cut interest rates, which would negatively impact risk assets like bitcoin. The cryptocurrency is particularly sensitive to interest rates and global liquidity conditions rather than actual economic activity. Moreover, rising costs for essential items like fuel and food could reduce investors' willingness to invest in speculative assets. These risks are already manifesting in the markets, with WTI crude prices increasing to around $95 from $79 last week, and government bond yields rising across major economies. The U.S. 10-year yield has increased by eight basis points to 4.32% this week, while its U.K. counterpart has risen by 18 basis points to 4.96%. Michael Kramer, founder and CEO of Mott Capital Management, noted that 'oil prices are rising alongside yields and widening volatility spreads, signaling tighter financial conditions and increasing market risks.' Despite these concerns, U.S.-listed spot bitcoin ETFs continue to show sustained demand, with the fastest inflows in a month based on the seven-day moving average of net flows tracked by Glassnode. However, some analysts are urging caution, arguing that the rally lacks broad-based support in the spot market. Julio Moreno, head of research at CryptoQuant, warned that 'the recent Bitcoin price increase is completely driven by demand in the perpetual futures market. Meanwhile, spot demand is still contracting (although at a slower pace). The same happened in January, when Bitcoin peaked at $98K. There are risks of a correction if traders start taking profits while spot demand continues to contract.' The market capitalization of USDT, the largest dollar-pegged stablecoin, has reached a record high of $188.88 billion. Meanwhile, speculation in non-serious tokens is reaching a fever pitch, with overcrowding in bullish bets. For a more in-depth analysis of today's activity in altcoins and derivatives, see Crypto Markets Today. For a comprehensive list of events this week, see CoinDesk's 'Crypto Week Ahead.'