Bitcoin’s inflation quagmire gets stickier as renewed MidEast conflict sends oil price soaring

Market analysts tracking the macroeconomy will find bitcoin BTC$61,900.92 in a particularly intriguing spot right now, characterized by conflicting sets of inflation signals. Compounding the uncertainty is the latest flare-up in the conflict with Iran and its effect on oil prices.

Early this week, we noted how inflation breakevens — the bond market’s expectations for the cost of living over the next year and beyond — have come off sharply, weakening the case for Fed interest-rate increases. That’s a tailwind for BTC.

But U.S. consumers are not in sync with markets, according to a Federal Reserve Bank of New York survey released Tuesday.

They now expect inflation to rise to 3.7% over the next 12 months, up from 3.5% in May and the highest reading since September 2023. Looking forward for the next three years, expectations climbed to 3.3%, the most since June 2022.

Fed Chair Kevin Warsh has said that the central bank remains committed to bringing inflation down to 2%, disappointing anyone who expects it to tolerate higher inflation or give in to White House pressure for rate cuts.

Will the Fed focus on the breakevens, which are already at or below 2% at the short end, or on rising consumer concerns?

The Fed itself tends to trust breakevens because they reflect institutional capital allocation, while consumer surveys frequently lag behind and can be heavily influenced by volatile everyday costs like energy and food. Hence, the argument that falling breakevens are bullish for bitcoin still holds.

But the central bank may not entirely ignore Main Street sentiment, which can become self-reinforcing, especially if catalysts like energy prices remain volatile.

And guess what? The U.S.-Iran ceasefire has collapsed. The two sides exchanged airstrikes early today, triggering a roughly 5% jump in oil benchmarks. Bitcoin has fallen back to $62,000 and may drop further if the panic spreads to Wall Street later today.

Analysts are also watching the minutes from the Fed’s June meeting, due later today.

“Wednesday’s Fed minutes are the pin. With longs this crowded and funding this rich, a hawkish read is exactly the spark that flushes leverage, and the Strategy authorization hangs over every rally. We respect the bounce, we do not trust it, and we keep size honest into the minutes,” analysts at Marex said in an email.

By Omkar Godbole|Edited by Sheldon Reback

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