Author: Wintermute
Compiled by Deep潮 TechFlow
Shenchao Overview: This week, the market rebounded as U.S. inflation data came in line with expectations and Trump announced the end of the conflict with Iran, with a sharp drop in oil prices boosting risk assets. However, the real turning point for the crypto market depends on capital inflows, not just price rebounds—stablecoins, ETFs, and institutional funds have yet to show structural improvement. Don’t panic-sell during this volatility until you see these signals.
Macro market
This week's market rebound was driven by two events, both of which unusually worked in the same direction.
First, the May CPI data.
Up 4.2% year-over-year, marking the third consecutive month of accelerating growth and the highest level since 2023, but in line with expectations. That “in line with expectations” is the whole story. The bond market had been bracing for higher inflation data, fearing it would force Warsh to pivot hawkish sooner, but the numbers weren’t as bad as feared. Core inflation eased to 2.9%, suggesting that energy-driven inflation is peaking rather than spreading to services and wages. After three weeks of market anxiety over a potential second inflation spiral, an in-line data point was enough to bring relief.
Second, and more importantly, the Iran conflict has ended.
More than 100 days later, Trump announced on Sunday that an agreement had been reached, authorizing the reopening of the Strait of Hormuz and the lifting of maritime blockades, with the formal signing scheduled for June 19 in Switzerland. Brent crude has plummeted from a low of $110 a barrel over the past month to below $80, dropping 6.6% just this week. The geopolitical risk premium that has driven markets since late February is rapidly receding, pulling down the dollar (DXY -1%) and yields (10-year returning to around 4.50%). The decline in oil prices directly lowers the forward inflation path, which is why this week’s CPI data and the ceasefire agreement reinforced rather than offset each other.
The cross-asset movement clearly tells this relief story. The Russell 2000 led gains at +4.0%, followed by the Nasdaq at +2.3%, altcoins at +3.1%, and BTC at +1.9%, while Brent crude oil lagged behind. Risk appetite rotated, with energy premiums unwinding. The only notable underperformer was long-duration government bonds: Treasuries with maturities above 20 years rose just +0.8%, as overall inflation at 4.2% constrained downward yield movement, even as the war premium faded.
All of this combines to create a truly challenging situation ahead of the upcoming FOMC meeting. A 4.2% overall inflation rate supports the "higher for longer" narrative, while softening core inflation and plunging oil prices suggest the shock is temporary and that a rate cut could be next. No one expects a policy change on Wednesday, so the dot plot, updated projections, and Warsh’s first press conference are the only highlights. How he frames this contradiction—whether by anchoring on overall inflation or looking through to core inflation and oil prices—will set the tone for the remainder of the year.
Digital assets
To understand this week, you must look back two weeks, when the entire sector dropped over 10% and BTC fell 14% in a single week. Those focused solely on crypto blamed it on Saylor selling 32 BTC and the ensuing capital concerns. The reality is two other driving factors:
(i) Rising inflation concerns and strong non-farm payroll data triggered broad risk-off rotation,
(ii) The rally from the low of $60,000 to $83,000 has been confirmed as lacking further support. This was a bear market rally, and it is now confirmed.
This week was a rebound. BTC recovered from its low of $60,000, closing up +1.9%, while altcoins rose +3.1%, benefiting from in-line CPI data and a ceasefire agreement. ETH was the clear laggard, declining 0.4% as everything else rallied, continuing its relative weakness. There is no structural change here—this is simply high-beta risk assets responding to improved market conditions.
Looking back, we’ve experienced three drawdowns of over 20% since last October. The difference lies in the characteristics: the first two were directional sell-offs, while this most recent drop from $83,000 to $60,000 was a bear trap—a move that caught both longs and shorts on both sides. Perpetual swaps and options show minimal interest in directional exposure, which is normal at this stage. Unless there’s major news, the base case is sideways trading through the summer.
The harder question is when to shift—and the answer lies in liquidity. Cryptocurrencies remain macro assets, acting as a release valve for excess liquidity, which flows in through three channels: stablecoins, ETFs, and DATs (Digital Asset Treasury Companies). None of these are reversing. DAT assets under management have declined from approximately $220 billion to around $140 billion, with new funding essentially halted except for Strategy, Bitmine, and Strive. ETFs have just recorded their longest streak of outflows since launch, and last week showed no sign of a turning point. Stablecoin flows are following the same outflow trend.
It’s important to remember how the last cycle actually began. There was a bottom and recovery, but the real rally started in early 2024 with the approval of ETFs—which was front-run and brought in significant capital. If the argument is a rebound to $100,000, the question is where that capital will come from: institutions are on the sidelines, while retail investors are busy trading leveraged ETFs and single stocks. Before this trend reverses, calling a bottom feels premature. We need to see structural shifts in the underlying momentum behind stablecoin minting/redemptions, ETF flows, and/or DAT activity.
Our perspective
Don't get shaken out during market fluctuations.
The risk-reward ratio at 60,000 is attractive over the long term, as each washout leaves behind a higher-quality, more committed holder base. This does not mean the bottom has arrived; it’s still possible to trade below $50,000 before any improvement is visible. Positions have been cleared, and net selling pressure has eased—but this is occurring on diminished summer trading volumes.
The only thing to watch is fund flow, not price or news. The shift in continuous inflows into ETFs and stablecoins marked the true turning point of the last cycle, and there are currently no signs of this yet. The advice in the face of this situation is to avoid overcommitting on any rallies and getting shaken out by volatility.
In the short term, Wednesday’s speech by Warsh is a catalyst. A dovish interpretation of softer core inflation and lower oil prices will sustain the relief; a hawkish interpretation of the 4.2% overall inflation rate will end it. Separately, the U.S.-Iran signing ceremony in Switzerland on Friday is a significant event.