Bitcoin's Upward Momentum 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. The Pentagon recently informed U.S. lawmakers in a classified briefing that clearing mines in the Strait of Hormuz could take at least six months, and this process will only commence once the U.S.-Iran conflict has been resolved. According to the Washington Post, the briefing also cautioned that gasoline and oil prices may remain elevated until the midterm elections. Persistent high energy costs could lead to sticky inflation, limiting the Federal Reserve's ability to cut interest rates, which would have a negative impact on risk assets. Bitcoin, being highly sensitive to interest rates and global liquidity conditions rather than real economic activity, is particularly vulnerable. The 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%. 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 challenges, 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 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, while speculation in non-serious tokens is reaching a fever pitch, with overcrowding in bullish bets. The chart showing the fluctuations in the ratio between bitcoin's price and gold has been steadily rising and has now topped the 100-day average, with the 50-day average potentially moving above the 100-day average, confirming a bullish crossover.