by Samer Hasn, Senior Market Analyst at XS.com
Bitcoin is trading sideways just above $74K after rejection at $76K earlier yesterday. The coin posted 8 consecutive days of gains earlier this month despite unrest in the broader financial market.
Bitcoin seemed to benefit from the surprisingly weak performance of precious metals amid an upward Treasury yield rally fueled by a higher-for-longer interest-rate narrative.
The upward inflation risk is driven by rising oil prices due to the war in the Middle East and the closure of the Strait of Hormuz. This risk has diminished hopes of a rate cut by the Federal Reserve before September (with only a 46.1% chance), as shown by CME FedWatch Tool figures. That pushed the 10-year Treasury yield up by over 340 points, its largest gain since the beginning of the war.
Some might argue that Bitcoin rises as an alternative safe haven during volatile and crisis periods; however, poor economic and financial fundamentals can trigger massive trend reversals. Consider the supermassive liquidation wave that occurred on October 10th of last year, driven by trade tensions between the U.S. and China.
The impacts of the war in the Middle East have not yet fully materialized. Many reports and statements from high-ranking officials from the US and Israel also support the idea that the war could last for many weeks before any of the main objectives are achieved.
Other countries might become more involved, the Bab el-Mandeb Strait front could be reactivated, and many key oil and gas core infrastructure could be significantly damaged, sparking a structural supply disruption on a global scale that might last for months.
Furthermore, a hawkish surprise from Jerome Powell following today’s Federal Open Market Committee (FOMC) decision could catalyze a broader trend reversal. Monetary policymakers have maintained a cautious stance on rate reductions amid persistent trade tensions, and the current Middle East conflict introduces a significant secondary layer of macroeconomic instability. As heightened inflation risks and policy uncertainty begin to manifest in labor market data and sentiment surveys, the market may face heightened volatility and a deeper reassessment of risk-asset valuations.
To further complicate matters, the recent Bitcoin rally seems to be fueled more by speculative positioning than by genuine fundamental demand.
The inflow into spot bitcoin ETFs remains slow, in my opinion, compared to the bullish trends seen in the last year.
According to SoSo Value, bitcoin ETFs are in their fourth consecutive week of positive net inflows exceeding $2.5B. I would expect more money to flow into these ETFs given the severe drawdown Bitcoin experience. In recent months, positive inflows were fragile and poised to reverse, resulting in no solid bull buildups or confidence in the rally’s strength.
At the same time, heightened speculative interest in the futures market underscores the risk of a renewed wave of liquidation should the geopolitical consequences of the war fully manifest. Since the beginning of the month, aggregate crypto futures open interest has surged from $98.7 billion to $116.2 billion as of yesterday, according to CoinGlass.
Furthermore, the recent Bitcoin rally appears structurally fragile as whale accumulation has failed to provide a sustainable floor. Data from BGeometrics indicates that the number of whale addresses holding between 1,000 and 10,000 BTC had been steadily increasing since February 25; however, this trend shifted toward distribution after March 12, with the network losing 11 such entities, bringing the current count to 1,925 whales. The speculative nature of these inflows, coupled with the absence of robust on-chain accumulation, suggests that the uptrend remains highly vulnerable to any significant macroeconomic shock.
On the other hand, if we start to see signs of the war’s approaching end, whether by achieving the military objective or by reaching a diplomatic resolution under economic pressure or logistical and ammunition-supply challenges, that might boost the bitcoin rally.
