Bitcoins slipping below $60,000 may have less to do with Michael Saylor’s ( MSTR ) strategy and more to do with inflation creeping higher, one analyst argued.
In a Monday report, Markus Thielen, founder of 10x Research, wrote to clients that investors have largely misunderstood the drivers behind crypto’s sharp selloff in recent weeks. While much of the market focused on Strategy’s first bitcoin sale since 2022 and the potential overhang if the largest company holder sells more, the bigger story has been a wave of institutional selling through spot bitcoin exchange-traded funds (ETF), he said.
Since the U.S. inflation report for April came in higher than expected on May 12, U.S.-listed bitcoin ETFs have seen about $5.4 billion in net redemptions, Thielen noted. During the same period, Strategy accumulated about $2 billion of bitcoin, making it one of the few significant buyers in the market.
“The market has misdiagnosed this selloff,” Thielen wrote. “Strategy is not the problem.”
Thielen said attention should now turn to Wednesday’s May consumer price index report, which could determine whether bitcoin’s recent correction deepens or stabilizes.
10x’s model projects annual inflation to rise to 4.3%, which is above both the previous month’s 3.8% reading and the Wall Street consensus estimate of 4.2%. A reading above 4% could reinforce concerns that the Federal Reserve will have to keep interest rates higher for longer, or potentially even consider further hikes, the report said.
That would be unwelcome news for risk assets. Markets entered the year expecting more rate cuts, but after a string of warmer-than-expected inflation and labor market readings, traders are now pricing in easing altogether and increasingly discussing the possibility that the Fed’s next move could be a hike rather than a cut.
While bitcoin appears to be technically oversold after its recent dip, Thielen cautioned against treating a short-term bounce as the start of a sustained recovery. The firm expects bitcoin to see a relief rally early in the week, but the move is likely to fade if inflation surprises to the upside.
The broader flow picture has also remained weak, 10x Research said. Stablecoins recorded around $1.7 billion in net outflows last week and $5.5 billion during the month, suggesting that capital is leaving the crypto market. Meanwhile, bitcoin futures open interest has fallen sharply as traders cut exposure.
Thielen said ETF flows remain the most important metric to watch to gauge bitcoin’s next move. “Institutional ETF flows drive price,” he wrote. “Follow the money, not the narrative.”
Read more: Bitcoin’s slide has no single cause. AI, technology IPOs, quant, strategy sales all play a role, says NYDIG
