Cryptocurrency Market Amid Resurgent Inflation

In the article published on May 14th, titled "Bitcoin Falls Below 80k! Will It Drop Further? ... Inflation Nightmare Repeats, Fed May Hike Rates This Year," it was mentioned that the entire financial market, including the cryptocurrency market, is facing a bleak macroeconomic environment!

Last week, data released by the U.S. Department of Labor showed that the Producer Price Index (PPI) for April far exceeded market expectations. The April PPI rose 1.4% month-over-month, well above the widely expected 0.5%, marking the highest single-month increase since 2022!

What worries the market even more is that the previously released Consumer Price Index (CPI) also sent chills down spines. The April CPI increased 3.8% year-over-year, not only higher than the previous 3.3%, but also surpassing the market forecast of 3.7%.

With both PPI and CPI soaring, it almost creates a terrifying picture of synchronized inflation resonance, sending a clear signal to the market: inflation is rebounding strongly and there are no signs of easing.

It’s important to note that the Producer Price Index (PPI) is often a leading indicator of the Consumer Price Index (CPI). The significant outperformance of the April PPI is likely to be reflected in next month’s CPI inflation data. In other words, the U.S. Department of Labor’s CPI data for May is expected to show a substantial rebound.

If next month’s CPI data significantly exceeds market expectations, it will put greater pressure on the Federal Reserve’s monetary policy.

On one hand, the resurgence and rapid rebound of inflation will reduce the room for rate cuts; on the other hand, it will force the Fed to adopt a more cautious approach to monetary policy, almost locking in the window for rate cuts this year. From the current situation, the likelihood of the Fed cutting rates again this year is nearly zero, and there’s even a possibility of rate hikes!

For the financial and crypto markets, this means liquidity could tighten further, investor risk appetite will be greatly suppressed, and high volatility may become the norm in the short term, with market sentiment possibly becoming more cautious.

Moreover, the article from last week also mentioned: "If Bitcoin cannot quickly recover and stabilize above $80,000 in the short term, combined with the shock from PPI data far exceeding expectations, Bitcoin may face further declines, with key psychological support levels likely in the $78,500 to $76,000 range."

As expected, in the early hours of May 15th, Bitcoin briefly surged due to the positive news that the Clarity Act was passed in the Senate Banking Committee with a 15-9 vote, pushing above $80,000 and reaching a high of $82,000.

However, the short-term positive news was not enough to fully ease concerns about inflation rebound and possible Fed rate hikes. Bitcoin’s price quickly declined again, falling back below the $80,000 threshold.

This trend clearly shows that although policy positives can provide a short-term boost to the crypto market, under the current macro environment, the market remains highly sensitive to risk assets, and short-term price volatility is unlikely to subside.

US-Iran Tensions Worsen Significantly

Furthermore, over the past 48 hours, Bitcoin fell below $77,000, and Ethereum dropped below $2,100, causing the crypto market to evaporate over a trillion dollars in market value overnight.

Looking solely at the price charts, one might think this is just a normal market correction, as fluctuations are common. But a closer review of the timeline reveals that this decline was almost synchronized with the rapid deterioration of US-Iran tensions, reflecting a concentrated release of macroeconomic and geopolitical risks.

US-Iran Middle East tensions are once again pushed toward full-scale confrontation!

From Trump’s latest ultimatum to the leak of U.S. weapons airlifts and attack lists for Israel, these actions are clearly part of a carefully planned maximum pressure campaign.

Specifically, on May 17th, Trump held a meeting with the U.S. National Security team to discuss Iran. The next early morning, he again tweeted a warning to Iran: “They better act quickly, or they will be left with nothing.”

This series of events, with tightly linked timing, caused panic and risk-averse sentiment to spread rapidly across the financial markets, and crypto assets faced selling pressure.

Ultimately, the Strait of Hormuz remains closed, and international oil prices quickly rebounded to high levels, surpassing $105 per barrel. At the time of writing, Brent crude oil has reached $106.96 per barrel.

Additionally, the International Energy Agency and several banks repeatedly warn that global oil inventories are rapidly declining, indicating that the energy market tension is unlikely to ease in the short term, adding further uncertainty to financial and crypto markets.

If the US-Iran situation escalates further, global financial markets will inevitably be impacted. Rising oil prices will push inflation expectations higher, stock markets may face downward pressure, and risk assets in the crypto market will also come under selling pressure.

Next Focus

Until the US-Iran Middle East tensions become clearer, the crypto market will find it difficult to recover strongly!

When the Strait of Hormuz reopens is one of the key variables. According to the latest EIA report, the strait is expected to reopen by the end of May, but if delayed, oil prices could surge further.

Additionally, closely monitor the outcome of the Federal Reserve’s June policy meeting, as the tug-of-war between inflation pressures and geopolitical risks will directly influence the direction of U.S. monetary policy.