Bitcoin's Upward Trajectory Hits a Roadblock with Pentagon's Inflation Warning

As bitcoin appeared poised to break through the $80,000 barrier, macroeconomic uncertainty resurfaced, posing a significant challenge. A classified briefing by the Pentagon to US lawmakers revealed that clearing mines in the Strait of Hormuz, a critical oil supply route, could take a minimum of six months and would 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. This could lead to persistent 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, may be particularly affected. Moreover, rising costs of essential items like fuel and food could reduce investors' appetite for speculative assets. These risks are already manifesting in the markets, with WTI crude rising to around $95 from $79 and government bond yields increasing across major economies. The US 10-year yield has risen by eight basis points to 4.32%, 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 alongside 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 the 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, noted that 'The recent Bitcoin price increase is completely driven by demand in the perpetual futures market. Meanwhile, spot demand is still contracting, albeit 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 fever pitch. The ratio of bitcoin's price to gold has been steadily rising, with the 50-day moving average poised to move above the 100-day average, potentially confirming a bullish crossover and suggesting continued outperformance of bitcoin relative to gold.