Rising inflation concerns and tightening financial conditions are increasing the risk of further weakness in the crypto market, according to Bitfinex analysts.
The United States and global economy are facing mounting macroeconomic pressure as inflation remains elevated and financial conditions continue tightening.
Recent consumer price index data for April showed US inflation climbing to 3.8 percent year over year, while real wages have slipped into negative territory. At the same time, long term Treasury yields have surged to multi year highs.
Against this challenging backdrop, Bitcoin has retraced much of the gains generated during its early month rally.
The pullback has been amplified by weakening institutional demand and increasing outflows from spot Bitcoin exchange traded funds.
Institutional Demand Continues to Fade
According to the latest Alpha report published by Bitfinex, the US economy has shifted into what analysts describe as a “higher for longer” inflation environment.
Market expectations for Federal Reserve interest rate cuts have largely disappeared, while the possibility of additional rate hikes is becoming increasingly realistic as the year progresses.
Analysts warned that the growing risk of renewed monetary tightening is reducing Bitcoin’s momentum and leaving the asset more exposed to external shocks and prolonged high interest rates.
The report noted that these pressures are emerging alongside worsening liquidity conditions, which are now at their weakest levels since February.
Bitfinex analysts explained that the two main sources of marginal demand in the market, namely spot Bitcoin ETFs and yield generating products such as Strategy’s STRC offering, are both experiencing mounting stress.
Spot Bitcoin ETFs recently ended a six week inflow streak after recording nearly $1 billion in net outflows last week.
Meanwhile, on chain capital flows currently stand at approximately $2.8 billion, significantly below the roughly $10 billion historically associated with sustainable bullish market cycles.
According to the report, the strength of the current recovery now depends heavily on whether fresh capital continues entering the market as sentiment shifts away from panic and toward ongoing uncertainty.
Market Faces Risk of Additional Downside
Bitfinex analysts reiterated concerns first raised two weeks ago that the Bitcoin market may not yet be positioned for a lasting upward breakout.
Although Bitcoin previously rallied toward $82,000, institutional buying pressure has not been strong enough to absorb broader macroeconomic shocks and interest rate volatility.
This leaves the market vulnerable to additional downside pressure.
Bitcoin has already dropped to a two week low, reflecting what analysts describe as a deeper structural weakness that could worsen further if macroeconomic conditions remain hostile.
At the time of writing, Bitcoin was trading near $76,700, representing a decline of roughly 6.5 percent from its weekly opening level of $82,160.
Analysts expect Bitcoin to continue fluctuating within a range between $72,000 and $80,000 in the near term.
They added that broader market recovery prospects will largely depend on net capital inflows, particularly metrics tracked through the Realized Cap 30 Day Net Position Change indicator.#crypto#cryptonews https://coinsignals.net https://t.me/coinsignalpublic
