Bitcoin's Uptrend Faces Challenge from Inflation Concerns Backed by Pentagon

As bitcoin appeared poised to break through the $80,000 threshold, macroeconomic uncertainty reemerged as a significant obstacle. The Pentagon's classified briefing to U.S. lawmakers revealed that clearing mines in the Strait of Hormuz could take a minimum of six months, and this process will only commence once the U.S.-Iran conflict is resolved. The briefing also cautioned that gasoline and oil prices may remain elevated until the midterm elections, as reported by the Washington Post. Prolonged high energy costs could lead to persistent inflation, limiting the Federal Reserve's ability to reduce interest rates, which would negatively impact risk assets. Bitcoin, being highly sensitive to interest rates and global liquidity conditions rather than real economic activity, is particularly vulnerable. Rising costs of essential items like fuel and food could also reduce investors' willingness to invest in speculative assets. These risks are already manifesting in markets, with WTI crude prices surging to around $95 from $79 late last week, and government bond yields increasing across major economies. The U.S. 10-year yield has risen by eight basis points to 4.32% this week, while 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 demonstrate 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 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. Speculation in non-serious tokens is also reaching a fever pitch, with overcrowding in bullish bets. For 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.' The chart shows fluctuations in the ratio between bitcoin's price and gold, with the ratio steadily rising and now topping the 100-day average. More importantly, the 50-day average could soon move above the 100-day average, confirming a bullish crossover, which suggests a bullish shift in momentum, indicating continued outperformance of bitcoin relative to gold.