Bitcoin's Uptrend Faces Challenge from Pentagon's Inflation Warning

As bitcoin appeared poised to break through the $80,000 threshold, macroeconomic uncertainty has resurfaced as a significant obstacle. A classified briefing by the Pentagon to US lawmakers highlighted that clearing mines in the Strait of Hormuz, a critical oil chokepoint, could take at least six months and will only commence after the US-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 may lead to persistent inflation, limiting the Federal Reserve's ability to cut interest rates, which could negatively impact risk assets like bitcoin. The cryptocurrency's value is highly sensitive to interest rates and global liquidity conditions rather than real economic activity. Rising costs of essential items such as fuel and food may also deter investors from allocating capital to speculative assets. These risks are already manifesting in markets, with WTI crude prices surging to around $95 from $79 last week, and government bond yields increasing across major economies. The US 10-year yield has risen by eight basis points to 4.32% this week, while its UK 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 in tandem with yields and widening volatility spreads, signaling tighter financial conditions and increasing market risks.' Despite this, US-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 urging caution, arguing that the rally lacks broad-based support in the spot market. '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,' said Julio Moreno, head of research at CryptoQuant. 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.