BIT Research: With ETFs No Longer Buying and Strategy Slowing Down, What Could Drive Bitcoin’s Next Rally?
- Core Thesis: The current weakness in Bitcoin is primarily driven by a repricing of the macroeconomic environment. Rising inflation has led to a continuous downward revision of expectations for interest rate cuts. Meanwhile, the two major engines of the bull market—Bitcoin ETF and institutional capital inflows—are simultaneously cooling down, putting significant pressure on Bitcoin. The future trajectory depends on the path of inflation and the Fed’s policy.
- Key Factors:
- Inflation and interest rate expectations become the core constraint: With the CPI in May 2026 at 3.8%, market pricing has shifted from expected rate cuts to approximately 1.8 rate hikes. Bitcoin, lacking cash flow support, is more sensitive to interest rates.
- Rate cut expectations have been slashed: Market expectations for rate cuts in 2025 fell from 6 cuts in September 2024 to nearly zero in January 2025. Although there was a brief recovery, sentiment has turned weak again.
- ETF capital inflows have slowed significantly: Following the May 2026 CPI release, Bitcoin ETFs saw cumulative outflows of approximately USD 4.3 billion, with net selling recorded on 14 out of the subsequent 15 trading days.
- Institutional capital engine is cooling: Strategy and Bitcoin ETFs have collectively allocated approximately USD 110 billion to Bitcoin. However, as Strategy’s capacity to increase its holdings narrows, its driving effect 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 show that inflation eventually peaks, and institutional capital may flow back once rate cut expectations are restored.
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, strengthening its narrative as a hedge against currency debasement. 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 is not due to a deterioration of its own fundamentals, but rather the weakening of two core driving forces behind this bull run. On one hand, market expectations for interest rate cuts continue to be revised downwards; on the other hand, the incremental capital from Bitcoin ETFs and Strategy (formerly MicroStrategy) has begun to slow. Against this backdrop, Bitcoin is facing rising pressure, and its future trajectory will still depend on inflation and the path of Federal Reserve policy.
Inflation Reheats: Interest Rate Expectations Become Bitcoin's Biggest Constraint
The 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 after about 18 months. In June 2022, US CPI peaked at 9.1%. Subsequently, inflation continued to fall, dropping to 2.4% in September 2024. This strengthened market expectations for rate cuts, providing key support for Bitcoin's rise.
However, this narrative began to change at the end of 2024. As the market worried about a resurgence of inflation, expectations for rate cuts continuously declined. The market's expectation for rate cuts in 2025 was revised from about six cuts priced in September 2024 to nearly zero by January 2025. Although it later recovered somewhat to about 2.6 cuts, the market turned cautious again after CPI returned to around 3%. With the CPI data released on May 12, 2026, recording 3.8%, the market even began to re-price in about 1.8 rate hikes.
For stocks, higher inflation can still be partially absorbed through nominal income and profit growth. However, Bitcoin has no cash flow or earnings support, making it more sensitive to changes in interest rate expectations. When the market re-prices a path of higher rates, Bitcoin tends to be the first under pressure.
ETF and Institutional Capital Slowdown: 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 has been a core force driving market growth. However, as the Federal Reserve's policy stance turned more hawkish, capital inflows slowed noticeably. Entering 2026, Bitcoin ETFs experienced sustained net outflows, with a significant decline in investors' willingness to increase holdings.
Particularly after the CPI data release on May 12, 2026, ETF capital outflows intensified, with cumulative outflows reaching approximately $4.3 billion. In the subsequent 15 trading days, 14 recorded net selling, indicating institutional investors' caution in a high-inflation environment. Meanwhile, although Strategy and Bitcoin ETFs have together accumulated approximately $110 billion worth of Bitcoin, the driving force of Strategy as the second-largest capital engine has also weakened as its scope for increasing holdings narrows.
With ETF capital inflows stagnating, institutional allocation willingness declining, and Strategy's purchasing momentum slowing, both core drivers supporting this bull run show signs of cooling. Consequently, Bitcoin's rebound faces greater resistance.
Overall, the main challenge Bitcoin currently faces does not come from within the industry but from changes in the macroeconomic environment. The loose liquidity and rate cut expectations that supported the market's rise in the past are fading, and institutional capital remains cautious about high inflation and potentially higher rates. In the short term, as long as inflation remains high, Bitcoin will likely continue to consolidate in a range. However, looking at historical cycles, inflation will eventually peak. Once inflation falls and expectations for rate cuts are restored, institutional capital may 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, 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 financial professionals. BIT is not responsible for any investment decisions made based on the information provided in this content.
