BIT Research: If ETFs aren't buying and Strategy has slowed down, what can still drive Bitcoin's price up?
- Core Thesis: Bitcoin's current weakness is primarily driven by a repricing of the macroeconomic environment. Rising inflation expectations have led to a continuous downward revision of rate cut expectations. Combined with the cooling of two major bull market engines – Bitcoin ETFs and institutional capital inflows – Bitcoin faces significant headwinds. Its future trajectory depends on the path of inflation and the Federal Reserve's policy.
- Key Factors:
- Inflation and interest rate expectations are the core constraint: With the US CPI for May 2026 at 3.8%, the market has shifted from expecting rate cuts to pricing in roughly 1.8 rate hikes. Bitcoin, lacking cash flow support, is more sensitive to interest rate changes.
- Rate cut expectations have been drastically reduced: Market expectations for rate cuts in 2025 fell from six in September 2024 to near zero by January 2025, and while they briefly recovered, they have weakened again.
- ETF capital inflows have noticeably slowed: Following the release of the May 2026 CPI data, Bitcoin ETFs saw cumulative outflows of approximately $4.3 billion, recording net selling in 14 out of the subsequent 15 trading days.
- Institutional capital engine is cooling: Strategy and Bitcoin ETFs have collectively allocated approximately $110 billion to Bitcoin. However, as Strategy's capacity to increase its holdings narrows, its driving effect on the market is diminishing.
- The macro environment dominates short-term trends: As long as inflation remains elevated, Bitcoin is likely to trade in a consolidation 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, Bitcoin has benefited from an environment of loose liquidity and low inflation, with its narrative as a "hedge against monetary debasement" continuously strengthening. However, as institutional capital continues to flow in, Bitcoin's pricing logic is changing, becoming increasingly dependent on interest rate expectations and capital flows.
From the 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 rate cuts have been continuously revised downwards. On the other hand, the incremental capital brought in by Bitcoin ETFs and Strategy (formerly MicroStrategy) has begun to slow down. 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 Reheating: Interest Rate Expectations Become Bitcoin's Biggest Constraint
Post-pandemic fiscal stimulus changed the monetary transmission mechanism. Capital not only pushed up asset prices but also entered the real economy, leading to a significant rise in inflation about 18 months later. In June 2022, the US CPI reached a peak of 9.1%. Subsequently, inflation continued to decline, falling to 2.4% in September 2024, which continuously strengthened market expectations for rate cuts and provided important support for Bitcoin's rise.
However, this logic began to change at the end of 2024. As the market worried about a resurgence in inflation, expectations for rate cuts continued to decline. Market expectations for rate cuts in 2025 were revised from about six cuts priced in September 2024 down to nearly zero cuts by January 2025. Although it subsequently recovered to about 2.6 cuts, when CPI returned to around 3%, the market turned cautious again. The CPI data released on May 12, 2026, recorded 3.8%, and the market even began to re-price approximately 1.8 rate hikes.
For stocks, higher inflation can still be partially absorbed through nominal income and earnings growth. However, Bitcoin lacks cash flow and earnings support, making it more sensitive to changes in interest rate expectations. When the market reprices a higher interest rate path, Bitcoin often bears the brunt of the pressure.
ETF 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 approvals heated up in 2023, institutional capital has become the core force driving market gains. However, as the Fed's policy stance turned more hawkish, capital inflows slowed significantly. Entering 2026, Bitcoin ETFs have experienced sustained net outflows, with investors' willingness to increase holdings notably declining.
Especially after the release of the CPI data on May 12, 2026, ETF outflows intensified, accumulating total outflows of approximately $4.3 billion. In the following 15 trading days, 14 recorded net selling, indicating institutional capital remains cautious towards the high-inflation environment. At the same time, while Strategy and Bitcoin ETFs have cumulatively allocated about $110 billion to Bitcoin, the driving force of Strategy as the second-largest capital engine is also weakening as its capacity to increase holdings gradually narrows.
With ETF inflows stagnating, institutional allocation appetite waning, and Strategy's accumulation momentum slowing, the two core drivers underpinning this bull market are showing signs of cooling, presenting greater resistance to Bitcoin's rebound.
Overall, the main challenges Bitcoin currently faces are not internal to the industry but stem from changes in the macro environment. The loose liquidity and rate cut expectations that previously supported the market's rise are diminishing, and institutional capital remains cautious about high inflation and higher interest rates. In the short term, as long as inflation remains high, Bitcoin is likely to continue consolidating in a range. However, looking at historical cycles, inflation will eventually peak. Once inflation falls and expectations for rate cuts are restored, institutional capital is likely to flow back in, and Bitcoin could usher in a new round of stronger recovery.
Some of the above views are from BIT on Target. Contact us to get the full BIT on Target report.
Disclaimer: The market carries risks. Invest with caution. This article does not constitute investment advice. Digital asset trading may involve significant risk and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. BIT is not responsible for any investment decisions made based on the information provided in this content.
