Macro Pressure Keeps Bitcoin Capped

Inflation, not growth, is the binding constraint for digital assets right now. Core CPI excluding energy came in below expectations, but energy did the damage: the gasoline component alone accounted for 60% of last month’s CPI print, lifting headline inflation to 4.2%, more than double the Fed’s 2% target.

Markets are pricing one to two rate hikes this year, and that repricing, not fundamentals, is what is weighing on Bitcoin. Incoming Fed Chair Kevin Walsh takes the helm on the 17th, and his recent comments suggest a more nuanced read of the backdrop, citing the deflationary pull of AI and the transitory nature of energy-driven inflation. A more measured tone than the market expects would be supportive, though the absence of forward guidance means clarity will have to wait.

Flows and positioning

Global digital asset investment product flows are essentially flat to slightly negative year to date, echoing the 2022 to 2024 tightening cycle. A large share of recent outflows reflects the unwinding of basis trades, with iShares notably affected. AI is also absorbing liquidity and mindshare: in client conversations, the crypto opportunity is being set aside in favour of AI exposure.

Bitcoin has repeatedly tested and failed to break above $80k, a level that aligns closely with its 200-day moving average. A sustained move higher is unlikely without a more dovish Fed and lower inflation expectations.

The tail risk

Oil is the variable to watch. Prices appear artificially suppressed by Chinese demand rationing, and the snap-back risk is real. Crude at $140 to $150 would carry severe stagflationary implications for developed markets. Bitcoin would likely face short-term headwinds in that scenario, but it is precisely an environment of supply-driven inflation, where central banks are impotent, that strengthens the long-term case for a fixed-supply asset.

What it means for portfolios

There are no strong near-term tailwinds for Bitcoin, but no credible signal of material further downside either. Patience remains the position.

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