Author: Wintermute
Compiled by: TechFlow
TechFlow Insight: Markets rebounded this week as US inflation data met expectations and Trump announced an end to the Iran conflict, with plunging oil prices boosting risk assets. However, the real turning point for the crypto market depends on capital inflows, not price rebounds – there has been no structural improvement in stablecoins, ETF flows, or institutional capital. Do not get chopped up in volatile markets before seeing these signals.
Macro Markets
This week's rally was driven by two events, both surprisingly pulling in the same direction.
First, May CPI data.
Year-on-year at 4.2%, it accelerated for the third consecutive month, hitting a new high since 2023, but it was in line with expectations. This "in-line" reading is the whole story. The bond market had been bracing for hotter inflation, fearing it would push Warsh to turn hawkish earlier, but the data wasn't that bad. Core inflation cooled to 2.9%, suggesting energy-driven inflation may be peaking rather than spreading to services and wages. After three weeks of market anxiety about a secondary inflation spiral, an in-line reading was enough for relief.
Second, and more importantly, the end of the Iran conflict.
After over 100 days, Trump announced an agreement on Sunday, authorizing the reopening of the Strait of Hormuz and lifting the maritime blockade, with a formal signing scheduled for June 19th in Switzerland. Brent crude plunged from around $110 a month ago to the low $80s, dropping 6.6% this week alone. The geopolitical risk premium that has driven markets since late February is rapidly unwinding, pulling the dollar (DXY -1%) and yields (10-year back to around 4.50%) down with it. Falling oil directly lowers the forward inflation path, which is why the CPI data and ceasefire reinforced each other this week instead of offsetting.
Cross-asset moves clearly tell this relief story. The Russell 2000 led gains at +4.0%, Nasdaq +2.3%, altcoins +3.1%, BTC +1.9%, with Brent crude at the bottom. Risk appetite rotated, energy premium flowed out. The only notable laggard was long-dated Treasuries: 20+ year Treasuries were only +0.8%, as the 4.2% headline inflation capped yield downside even with the war premium exiting.
All this sets up a genuinely tricky situation for the upcoming FOMC meeting. The 4.2% headline argues for "higher for longer." Softer core and plummeting oil argue the shock is transitory and the next move could even be a cut. No one expects a policy change on Wednesday, so the dot plot, updated projections, and Warsh's first press conference are everything. How he frames this contradiction – anchoring on headline or looking through to core and oil – will set the tone for the second half of the year.
Digital Assets
To understand this week, you have to start two weeks ago when the sector dropped over 10%, with BTC down 14% in a single week. Crypto-only observers blamed it on Saylor selling 32 BTC and ensuing capital fears. The reality was two other drivers:
(i) A broad risk-off rotation triggered by rising inflation fears and strong jobs data,
(ii) plus confirmation that the rally from the lower 60ks to $83k lacked further support. That was a bear market rally, now confirmed.
This week was a bounce. BTC rebounded from the lower 60ks to close up +1.9%, altcoins +3.1%, benefiting from in-line CPI and the ceasefire. ETH was a clear laggard, down 0.4% for the week while everything around it rose, extending its relative weakness. There's no structural change here. This is high-beta risk assets reacting to a better market environment.
Stepping back, we've had three >20% drawdowns since last October. The difference is in character. The first two were directional sell-offs. The recent one from $83k to $60k was a bear trap, the kind of move that cuts both bulls and bears on both sides. Perpetuals and options show little interest in directional exposure, which is normal for now. Barring major news, the base case is chopping into summer.
The harder question is when it turns, and the answer lies in liquidity. Crypto remains a macro asset, a release valve for excess liquidity, and that liquidity arrives via three channels: stablecoins, ETFs, and DATs (Digital Asset Treasuries). None are reversing. DAT AUM has fallen from ~$220B to ~$140B, and new funding has largely stopped outside of Strategy, Bitmine, and Strive. ETFs just set their longest streak of outflows since launch, with no sign of a turn last week. Stablecoin flows follow the same outflow trend.
It's worth remembering how the last cycle actually started. There was a bottom and recovery, but the real move began in early 2024 with the ETF approval, which was front-run, and the money it brought. If the thesis is a run back to $100k, the question is where that money comes from. Right now, institutions are on the sidelines, retail is busy trading levered ETFs and single stocks. Until that trend reverses, calling the bottom feels premature. We need to see a structural shift in momentum behind stablecoin mints/redemptions, ETF flows, and/or DAT activity.
Our Take
Don't Get Chopped
Risk/reward around the lower 60ks is attractive long-term; each flush leaves a higher-quality, more convicted holder base. That doesn't mean the bottom is in. Trading into the 50ks before we see any improvement is possible. Positioning has been cleaned up, net selling pressure has eased, but it's on dwindling summer volume.
The only thing to watch is flow, not price, not news. The turn to persistent inflows into ETFs and stablecoins marked the real move of the last cycle, and there's no sign of it yet. The advice facing this chop is not to bet too heavily on any rebound and get chopped up.
Near-term, Warsh's comments on Wednesday are a catalyst. A dovish read on softer core and lower oil extends the relief; a hawkish read on 4.2% headline ends it. Beyond that, the US-Iran signing ceremony in Switzerland on Friday is the event.
