BIT Research: ETFs Have Stopped Buying, Strategy Has Slowed Down – What Can Drive Bitcoin Higher Next?
- Key Insight: Bitcoin’s current weakness is primarily driven by a repricing of the macro environment. Rising inflation has led to a continuous downward revision of rate-cut expectations. Meanwhile, the two major bullish engines of this cycle—Bitcoin ETFs and institutional capital inflows—are simultaneously cooling. This combination places significant pressure on Bitcoin, and its near-term trajectory will depend on the path of inflation and Federal Reserve policy.
- Key Factors:
- Inflation and rate expectations have become the core constraint: The May 2026 CPI came in at 3.8%, causing the market to shift from expectations of rate cuts to pricing in approximately 1.8 rate hikes. Due to its lack of cash flow, Bitcoin is highly sensitive to interest rate changes.
- Rate-cut expectations have been sharply revised downward: Market expectations for rate cuts in 2025 dropped from six in September 2024 to near zero by January 2025. Although there was a brief recovery, the outlook has since weakened again.
- ETF capital inflows have slowed markedly: Following the release of the May 2026 CPI data, Bitcoin ETFs recorded cumulative outflows of approximately $4.3 billion, with net selling occurring in 14 out of the subsequent 15 trading days.
- Institutional capital engines are cooling: Strategy and Bitcoin ETFs have collectively allocated approximately $110 billion to Bitcoin. However, as Strategy’s room for further accumulation narrows, its driving effect on the market is diminishing.
- The macro environment dominates short-term direction: As long as inflation remains elevated, Bitcoin is likely to continue consolidating in a range. However, historical cycles suggest that inflation will eventually peak, and once rate-cut expectations are restored, institutional capital may flow back in.
The current market is in a phase of macro repricing dominated by inflation and interest rate expectations. Over the past decade or more, Bitcoin has benefited from an environment of loose liquidity and low inflation, with its narrative of "hedging against currency dilution" continually strengthening. However, as institutional capital continues to flow in, Bitcoin's pricing logic is shifting, increasingly relying on interest rate expectations and capital flows.
Judging from current market performance, Bitcoin's recent weakness does not stem from a deterioration of its own fundamentals, but rather from the weakening of the two core driving forces behind this bull market. On one hand, market expectations for interest rate cuts have been consistently revised downward. On the other hand, the incremental capital inflows from Bitcoin ETFs and Strategy (formerly MicroStrategy) have begun to slow. Against this backdrop, the pressure on Bitcoin is rising, and its subsequent trajectory will still depend on changes in inflation and the Federal Reserve's policy path.
Inflation Heating Up Again: Interest Rate Expectations Become Bitcoin's Biggest Constraint
The post-pandemic fiscal stimulus has altered the monetary transmission mechanism. Capital not only pushed up asset prices but also entered the real economy, significantly driving up inflation about 18 months later. In June 2022, U.S. CPI peaked at 9.1%; subsequently, inflation continued to fall, reaching 2.4% in September 2024. This led the market to continuously strengthen expectations for interest rate cuts, providing crucial support for Bitcoin's rally.
However, this logic began to change in late 2024. As the market worried about a resurgence of inflation, expectations for rate cuts declined. Market expectations for rate cuts in 2025, priced in around six cuts in September 2024, were revised down to nearly zero by January 2025. Although they subsequently recovered to about 2.6 cuts, the market turned cautious again after CPI returned to around 3%. CPI data released on May 12, 2026, came in at 3.8%, leading the market to even begin pricing in approximately 1.8 rate hikes.
For stocks, higher inflation can still be partially absorbed through nominal income and earnings growth. However, Bitcoin has no cash flow or earnings to fall back on, making it more sensitive to changes in interest rate expectations. When the market reprices a higher rate path, Bitcoin often bears the brunt of the pressure.
ETFs and Institutional Capital Slow Down: Two Engines of the Bull Market Cool Simultaneously
In this cycle, Bitcoin ETFs have been one of the most important sources of incremental capital. Since expectations for ETF approval heated up in 2023, institutional capital became the core force driving market rallies. However, as the Federal Reserve's policy stance turned more hawkish, capital inflows noticeably slowed. Entering 2026, Bitcoin ETFs experienced sustained net outflows, with investor willingness to increase holdings significantly declining.
Especially after the release of CPI data on May 12, 2026, ETF outflows intensified, with cumulative outflows reaching approximately $4.3 billion. Over the following 15 trading days, 14 recorded net selling, indicating institutional capital's caution in a high-inflation environment. Meanwhile, Strategy and Bitcoin ETFs have collectively allocated around $110 billion to Bitcoin. However, as Strategy's scope for increasing holdings gradually narrows, its role as the second-largest capital engine is also weakening.
With ETF inflows stalling, institutional allocation appetite waning, and Strategy's buying momentum slowing, the two core driving forces underpinning this bull market are showing signs of cooling, creating greater resistance for a Bitcoin rebound.
Overall, the main challenge facing Bitcoin currently comes not from within the industry, but from changes in the macroeconomic environment. The loose liquidity and interest rate cut expectations that previously supported the market are fading, and institutional capital remains cautious about high inflation and higher interest rates. In the short term, as long as inflation remains elevated, Bitcoin will likely continue to consolidate in a range. However, looking at historical cycles, inflation will eventually peak. Once inflation declines and rate cut expectations are restored, institutional capital may flow back in, potentially ushering in a new and stronger round of recovery for Bitcoin.
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Disclaimer: The market involves risk and investment requires caution. This article does not constitute investment advice. Digital asset trading may involve significant risk and volatility. Investment decisions should be made after carefully considering personal circumstances and consulting with financial professionals. BIT is not responsible for any investment decisions made based on the information provided in this content.
