Deep Tide Guide: This week's market rebounded due to US inflation data meeting expectations and Trump announcing the end of the Iran conflict, with plunging oil prices driving risk assets higher. But the real turning point in the crypto market depends on capital inflows, not price rebounds—stablecoins, ETFs, and institutional funds have yet to show structural improvement. Don't get shaken out before seeing these signals.

Macro Markets

This week's rally was driven by two events, and unusually, both moved in the same direction.

First, May CPI data.

Year-over-year 4.2%, accelerating for the third consecutive month, hitting a new high for 2023, but in line with expectations. This "meeting expectations" is the whole story. The bond market had been preparing for higher inflation data, fearing it would force Warsh to turn hawkish sooner, but the data wasn't that bad. Core inflation cooled to 2.9%, suggesting energy-driven inflation is peaking rather than spreading to services and wages. After three weeks of market concern over a secondary inflation spiral, an expected data point is enough to ease worries.

Second, and more importantly, the Iran conflict ended.

After over 100 days, Trump announced on Sunday that an agreement had been reached, authorizing the reopening of the Strait of Hormuz and lifting maritime blockades, with formal signing scheduled for June 19 in Switzerland. Brent crude oil plummeted from a low of $110 to over $80 in the past month, dropping 6.6% just this week. The geopolitical risk premium that had been driving the market since late February is rapidly fading, pulling down the dollar (DXY -1%) and yields (10-year back to about 4.50%). The decline in oil prices directly reduces the forward inflation path, which is why CPI data and the ceasefire agreement this week reinforced each other rather than offset.

The cross-asset trend clearly narrates this easing story. The Russell 2000 led with +4.0%, Nasdaq +2.3%, altcoins +3.1%, BTC +1.9%, while Brent crude lagged. Risk appetite rotated out of energy premiums. The only notable laggard was long-term government bonds: bonds over 20 years gained only +0.8%, because the overall 4.2% inflation limits the downside of yields, even as war risk premiums exit.

All these factors create a truly tricky situation ahead of the upcoming FOMC meeting. The 4.2% overall inflation supports a "higher for longer" stance. The softened core inflation and plunging oil prices suggest the shock is temporary, and the next step could even be rate cuts. No one expects policy changes on Wednesday, so the dot plot, updated forecasts, and Warsh’s first press conference are the main focus. How he frames this contradiction—whether anchoring on overall inflation or penetrating the surface to core and oil prices—will set the tone for the second half of this year.

Digital Assets

To understand this week, you must start from two weeks ago, when the entire sector fell over 10%, with BTC dropping 14% in a single week. Those solely focused on crypto blame it on Saylor selling 32 BTC and the subsequent capital concerns. The reality involves two other drivers:

(i) Rising inflation fears and strong non-farm payroll data triggering broad risk-off rotation,

(ii) Plus, the rally from $60k to $83k was confirmed to have no further support. That was a bear market rebound, now confirmed.

This week was a rebound. BTC recovered from the $60k low to close up +1.9%, altcoins +3.1%, benefiting from the expected CPI and ceasefire agreement. ETH lagged noticeably, falling 0.4% this week, while everything else rose, continuing its relative weakness. There’s no structural change here. This is high-beta risk assets reacting to a better market environment.

Taking a step back, since October last year, we’ve experienced three declines of over 20%. The difference lies in their characteristics. The first two were directional sell-offs. The recent move from $83k to $60k was a bear market false move, a market that chops both bulls and bears in two directions. Perpetual contracts and options show little interest in directional exposure, which is normal at this moment. Unless there’s major news, the baseline scenario is sideways trading into summer.

The harder question is when to turn, and the answer depends on liquidity. Crypto remains a macro asset, a valve for excess liquidity release, which reaches the market through three channels: stablecoins, ETFs, and DAT (Digital Asset Treasury). None are reversing. DAT assets under management have fallen from about $220 billion to around $140 billion, with new financing mostly halted aside from Strategy, Bitmine, and Strive. ETFs just posted their longest outflow since launch, with no signs of a turnaround last week. Stablecoin flows follow the same outflow trend.

It’s worth remembering how the last cycle actually started. There was a bottom and a recovery, but the real move began in early 2024 when ETFs were approved, which was pre-traded, along with the capital they brought. If the argument is a run back to $100k, the question is where that capital comes from. Currently, institutions are on the sidelines, retail traders busy with leveraged ETFs and single stocks. Before this trend reverses, bottom-fishing seems premature. We need to see structural momentum shifts behind stablecoin minting/redemption, ETF flows, and/or DAT activity.

Our View

Don’t get shaken out by sideways trading

The risk-reward ratio at $60k is attractive in the long term; each washout leaves behind a higher-quality, more conviction-driven holder base. This doesn’t mean the bottom has already appeared. We might still trade above $50k before any improvement. Positions have been cleaned, net selling pressure has eased, but this is during a shrinking summer volume.

The only thing to watch is capital flows, not price, not news. A shift toward continuous inflows into ETFs and stablecoins signals the true market cycle, but there are no signs of that yet. The advice in this environment is not to bet heavily on any rebound and risk getting shaken out.

In the short term, Wednesday’s Warsh speech is the catalyst. A dovish interpretation of softened core inflation and lower oil prices will continue the easing; a hawkish interpretation of 4.2% overall inflation will end it. Besides that, the signing ceremony between the US and Iran in Switzerland on Friday is an important event.

BTC-3.00%

ETH-2.07%

NAS1000.70%

BZ-2.03%

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