BIT Research: ETFs aren't buying, Strategy has slowed down—what can still drive Bitcoin's price up?
- Key Insight: The current weakness in Bitcoin primarily stems from a macro environment repricing. Rising inflation has led to a continuous downward revision of rate cut expectations. Meanwhile, the two major bull market engines—Bitcoin ETFs and institutional capital inflows—are simultaneously cooling down, placing significant pressure on Bitcoin. Its future trajectory depends on the path of inflation and the Federal Reserve's policy.
- Key Factors:
- Inflation and interest rate expectations have become the core constraint: With the CPI reaching 3.8% in May 2026, market expectations have shifted from anticipated rate cuts to pricing in approximately 1.8 rate hikes. Bitcoin, lacking cash flow backing, is more sensitive to interest rate changes.
- Rate cut expectations have been significantly downgraded: Market expectations for rate cuts in 2025 fell from 6 cuts in September 2024 to nearly zero by January 2025. Although there was a brief recovery afterward, expectations have weakened again.
- ETF capital inflows have noticeably slowed: Following the May 2026 CPI release, Bitcoin ETFs saw cumulative outflows of approximately $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 together have allocated approximately $110 billion to Bitcoin. However, as Strategy's room for accumulation narrows, its driving effect is diminishing.
- Macro environment dominates short-term trends: As long as inflation remains high, Bitcoin is likely to consolidate in a range. However, historical cycles show that inflation will eventually peak, and once rate cut expectations are restored, institutional capital may flow back in.
The current market is in a macro repricing phase led by inflation and interest rate expectations. Over the past decade, Bitcoin has benefited from an environment of ample liquidity and low inflation, reinforcing its narrative as a "hedge against currency dilution." However, as institutional capital continues to flow in, Bitcoin's pricing logic is shifting, becoming increasingly dependent on interest rate expectations and capital flows.
Observing the current market performance, Bitcoin's recent weakness is not due to a deterioration of its own fundamentals, but rather because the two core driving forces behind this bull run are weakening. On one hand, market expectations for rate cuts continue to be revised downward; on the other hand, the incremental capital from Bitcoin ETFs and Strategy (formerly MicroStrategy) is beginning to slow. Against this backdrop, the pressure on Bitcoin is rising, and its future trajectory will still depend on changes in inflation and the Fed's policy path.
Inflation Heats Up Again: 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 flowed into the real economy, driving a significant rise in inflation roughly 18 months later. In June 2022, the US CPI peaked at 9.1%. Subsequently, inflation steadily declined, reaching 2.4% in September 2024. This led the market to increasingly price in rate cuts, providing crucial support for Bitcoin's rally.
However, this logic began to change at the end of 2024. As market concerns about inflation resurfaced, expectations for rate cuts continued to fall. The market's expectation for rate cuts in 2025 was revised from about six cuts priced in during September 2024 down to near zero by January 2025. Although expectations briefly recovered to around 2.6 cuts, the market turned cautious again after the CPI returned to around 3%. The CPI data released on May 12, 2026, came in at 3.8%, leading the market to even re-price approximately 1.8 rate hikes.
For stocks, higher inflation can be partially absorbed through nominal income and earnings growth. However, Bitcoin lacks cash flows and earnings support, making it more sensitive to changes in interest rate expectations. When the market reprices a path of higher rates, Bitcoin often bears the brunt of the pressure.
ETF and Institutional Capital Slowdown: Both Bull Market Engines 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 became the core force driving the market's rise. However, as the Fed's policy stance turned more hawkish, capital inflows slowed significantly. Entering 2026, Bitcoin ETFs have experienced persistent net outflows, with a notable decline in investors' willingness to increase their holdings.
Especially after the CPI data release on May 12, 2026, ETF outflows intensified sharply, with cumulative outflows reaching approximately $4.3 billion. In the following 15 trading days, 14 recorded net selling, indicating institutional capital's cautiousness in a high-inflation environment. Meanwhile, combined allocations by Strategy and Bitcoin ETFs have reached about $110 billion in Bitcoin. However, as Strategy's capacity for further purchases gradually narrows, its role as the second major capital engine is also weakening.
With ETF inflows stalling, declining institutional allocation appetite, and Strategy's buying momentum slowing, the two core driving forces sustaining this bull market are showing signs of cooling, creating greater resistance for Bitcoin's rebound.
Overall, the main challenges Bitcoin faces currently are not internal to the industry but rather stem from the changing macroeconomic environment. The ample liquidity and rate cut expectations that supported the market's rise are fading, and institutional capital remains cautious about high inflation and higher rates. In the short term, as long as inflation remains elevated, Bitcoin will likely continue to trade in a consolidating range. However, looking at historical cycles, inflation will eventually peak. Once inflation declines and rate cut expectations are restored, institutional capital could flow back, potentially ushering in a new, more significant recovery for Bitcoin.
The views mentioned above are partly from BIT on Target. Contact us to get the full BIT on Target report.
Disclaimer: The market carries risks and requires careful investment. 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.
