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

As bitcoin appeared poised to break through the $80,000 barrier, macroeconomic uncertainty has resurfaced as a significant obstacle. A recent classified briefing by the Pentagon to U.S. lawmakers highlighted the potential for prolonged elevated oil prices, which could persist through the midterm elections, as the process of clearing mines in the Strait of Hormuz is expected to take at least six months and will only commence after the U.S.-Iran conflict is resolved. This warning, as reported by the Washington Post, suggests that high energy costs could keep inflation elevated, limiting the Federal Reserve's ability to reduce interest rates, thereby creating a challenging environment for risk assets like bitcoin, which is heavily influenced by interest rates and global liquidity conditions rather than actual economic activity. Rising essential costs could also deter investors from allocating capital to speculative assets. These risks are manifesting in markets, with WTI crude climbing to around $95 from $79 and government bond yields increasing across major economies. The U.S. 10-year yield has risen by eight basis points to 4.32%, 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.' Despite this, U.S.-listed spot bitcoin ETFs continue to see 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 urge caution, noting that the rally lacks broad 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, while speculation in non-serious tokens is intensifying, with overcrowding in bullish bets. The ratio between bitcoin's price and gold has been steadily rising, topping the 100-day average, with the 50-day average potentially moving above the 100-day average, indicating a bullish crossover and suggesting continued outperformance of bitcoin relative to gold.