BIT Investment Research: No more ETF purchases, Strategy is also slowing down, what else can Bitcoin rely on to rise?

The current market is in a macro re-pricing phase 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 of "hedging against currency dilution" continuously strengthening. However, as institutional funds continue 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 deteriorating fundamentals, but because the two main driving forces behind this bull market are weakening. On one hand, market expectations for rate cuts are continuously being revised downward; on the other hand, the incremental capital brought by Bitcoin ETFs and Strategy (formerly MicroStrategy) is beginning to slow. Against this backdrop, Bitcoin faces increasing pressure, and its future trajectory will still depend on changes in inflation and Federal Reserve policy paths.

Inflation Reaccelerates: Interest Rate Expectations Become Bitcoin’s Biggest Constraint

Post-pandemic fiscal stimulus has altered the monetary transmission mechanism, pushing capital not only into asset prices but also into the real economy, which after about 18 months led to a significant rise in inflation. In June 2022, the US CPI once hit a high of 9.1%; subsequently, inflation continued to decline and fell to 2.4% by September 2024, reinforcing market expectations for rate cuts and providing important support for Bitcoin’s rise.

However, this logic began to change at the end of 2024. As concerns about inflation re-emerging grew, expectations for rate cuts continued to decline. Market expectations for rate cuts in 2025, which were priced in around six cuts in September 2024, were revised down to nearly zero by January 2025; although there was a brief recovery to about 2.6 cuts, once CPI returned to around 3%, the market again turned cautious. The CPI data released on May 12, 2026, recorded 3.8%, and the market even began pricing in about 1.8 rate hikes.

For stocks, higher inflation can still be partially absorbed through nominal income and profit growth; but Bitcoin has no cash flow or earnings support, making it more sensitive to changes in interest rate expectations. When the market re-prices a higher interest rate path, Bitcoin often bears the brunt of the pressure first.

ETF and Institutional Capital Slowdown: The Two Main Engines of the Bull Market Cooling Off Simultaneously

In this cycle, Bitcoin ETFs are one of the most important sources of incremental capital. Since expectations for ETF approvals heated up in 2023, institutional funds have become the core force driving market gains. But as the Federal Reserve’s policy stance shifted toward hawkishness, capital inflows have noticeably slowed. After 2026, Bitcoin ETFs experienced continuous net outflows, with investor willingness to increase holdings significantly declining.

Especially after the CPI data was released on May 12, 2026, ETF outflows intensified, totaling approximately $4.3 billion. In the following 15 trading days, 14 days recorded net selling, indicating that institutional funds remained cautious in a high-inflation environment. Meanwhile, Strategy and Bitcoin ETFs together have accumulated about $110 billion worth of Bitcoin, but as Strategy’s capacity to increase holdings gradually narrows, its role as the second-largest capital engine is also beginning to weaken.

With ETF capital inflows stagnating, institutional willingness to allocate decreasing, and Strategy’s momentum slowing, the two core drivers supporting this bull market are showing signs of cooling, making Bitcoin’s rebound face greater resistance.

Overall, the main challenge Bitcoin faces today does not stem from within the industry but from macroeconomic changes. The loose liquidity and rate cut expectations that previously supported market gains are weakening, and institutional funds are also cautious about high inflation and higher interest rates. In the short term, as long as inflation remains high, Bitcoin is likely to continue consolidating sideways. But from a historical cycle perspective, inflation will eventually peak. Once inflation declines and rate cut expectations are re-established, institutional capital is expected to flow back, and Bitcoin may usher in a new, more vigorous recovery phase.