Bitcoin's Upward Trend Faces Challenge from Pentagon's Inflation Warning

As bitcoin appeared to gain momentum towards breaking the $80,000 barrier, macroeconomic uncertainty has re-emerged as a significant obstacle. A classified briefing by the Pentagon to U.S. lawmakers highlighted that clearing mines in the Strait of Hormuz, a crucial oil chokepoint, could take at least six months and will only commence after the U.S.-Iran conflict is resolved. The briefing also cautioned that gasoline and oil prices may remain high through the midterm elections, as reported by the Washington Post. The persistent increase in energy costs poses a risk of sticky inflation, limiting the Federal Reserve's ability to cut interest rates, which is a negative backdrop for risk assets like bitcoin. The cryptocurrency remains highly sensitive to interest rates and global liquidity conditions rather than real economic activity. Rising costs of essentials such as fuel and food could also deter investors from allocating capital to speculative assets. These risks are already manifesting in markets, with WTI crude prices rising to around $95 from $79 late last week, while government bond yields are increasing across major economies. The U.S. 10-year yield has risen by eight basis points to 4.32% this week, and its U.K. counterpart has increased by 18 basis points to 4.96%. According to Michael Kramer, founder and CEO of Mott Capital Management, 'Oil prices are rising alongside yields and widening volatility spreads, signaling tighter financial conditions and increasing market risks.' U.S.-listed spot bitcoin ETFs continue to show sustained demand, with funds experiencing their fastest inflows in a month based on the seven-day moving average of net flows tracked by Glassnode. However, some analysts are advising caution, arguing that the rally lacks broad-based support in the spot market. Julio Moreno, head of research at CryptoQuant, noted 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 market capitalization of USDT, the largest dollar-pegged stablecoin, has reached a record high of $188.88 billion, while speculation in non-serious tokens is reaching a fever pitch, with overcrowding in bullish bets.