Key takeaways:
Cooling oil prices and a multi-month high for the US dollar are keeping intense pressure on non yield-bearing assets.Spot Bitcoin ETF outflows paired with Strategy’s slowest buying pace in 18 months signal short-term downside risks.
Bitcoin (BTC) traded down to $59,060 on Wednesday despite the sharp retreat in oil prices. Inflationary pressures eased following a memorandum of understanding between the US and Iran, which temporarily reopened the Strait of Hormuz. Bitcoin traders fear that the bounce back to $60,000 might not last long as the US dollar strengthened.
US dollar strength index (left) vs. Bitcoin/USD (right). Source: TradingView
The US dollar jumped to its highest level against a basket of foreign currencies in 13 months, indicating growing confidence in the US economy. Typically, this metric shows a negative correlation with Bitcoin’s price, as some investors view the cryptocurrency as a hedge against inflationary pressures traditionally driven by high oil prices.
Gold (left) vs. Brent Crude oil, USD. Source: TradingView
Gold prices fell below $4,000 for the first time in 7 months as Brent crude oil plummeted below $74, nearing levels seen prior to the conflict in Iran. Investors signaled lower demand for scarce assets despite moderate anxiety about tech-sector cash flows amid increased capital expenditure by AI hyperscalers.
Bitcoin investment thesis weakened by reduced inflation perspectives and AI sector growth
Inflation will take time to cool down to the US Federal Reserve (Fed) target of 2%, leading traders to anticipate interest rates remaining higher for longer, which ultimately favors fixed-income investments. The latest US Labor Department unemployment benefit claims data fell by 4,000 from the prior week, further confirming that the economy is not slowing.
US expanded Monetary Base (M2), USD. Source: Fed St Louis
Regardless of investors’ risk assessments of the profitability of AI infrastructure investments, US government debt has been driving up liquidity over the past 3 years. Data released on Tuesday revealed that the US expanded Monetary Base (M2) increased to $23.05…
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