Bitcoin's recent upward momentum has encountered a significant obstacle in the form of a Pentagon-backed warning about inflation. The warning, issued in a classified briefing to U.S.
lawmakers, suggests that efforts to clear mines in the Strait of Hormuz, a crucial oil chokepoint, may take at least six months and will only commence after the U.S.-Iran conflict has been resolved. Furthermore, the briefing warned that elevated gasoline and oil prices may persist through the midterm elections, as reported by the Washington Post. This could lead to sticky inflation, limiting the Federal Reserve's ability to cut interest rates, which would have a negative impact on risk assets, including bitcoin. The cryptocurrency's value is highly sensitive to interest rates and global liquidity conditions rather than real economic activity.
Rising costs for essential items like fuel and food may also reduce investors' willingness to allocate capital to speculative assets. These risks are already manifesting in markets, with WTI crude prices increasing to around $95 from $79 late last week, and government bond yields rising across major economies.
The U.S. 10-year yield has increased by eight basis points to 4.32% this week, while its U.K.
counterpart has risen 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 these risks, 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, 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, while speculation in non-serious tokens is reaching a fever pitch, with overcrowding in bullish bets.
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.