Bitcoin is showing signs of building energy for a potential surge to new highs, fueled by a confluence of macroeconomic factors in the United States. These factors include the risk of stagflation, an ongoing tariff war, and the anticipation of Federal Reserve rate cuts.
The U.S. economy faces a growing risk of stagflation, which is a combination of slow economic growth and rising inflation. JPMorgan Chase CEO Jamie Dimon and other economists have warned about this possibility, citing factors such as rising deficits, geopolitical tensions, and the impact of tariffs on consumer prices. Tariffs, in particular, are seen as a major contributor to inflation, as they can lead to higher prices for consumers and businesses. Some economists believe that tariffs could trigger stagflation. Federal Reserve Chair Jerome Powell has also acknowledged that tariffs could push up prices and weigh on economic activity. Stagflation puts the Federal Reserve in a difficult position because acting against inflation could worsen the economic slowdown, while attempting to revitalize growth could boost inflation.
President Trump has imposed a series of tariffs on goods from various countries, including China, Canada, and Mexico. These tariffs have led to retaliatory measures from other countries, resulting in a trade war. The US Court of International Trade has ruled that some of these tariffs are illegal, but the tariffs remain in effect pending appeal. The trade war has created uncertainty and disrupted supply chains, contributing to concerns about stagflation.
In response to the economic challenges, the Federal Reserve is expected to cut interest rates. The objective of the Fed rate cuts is to stabilize prices and stimulate economic growth by lowering finance costs for businesses and consumers. However, there is debate among Fed officials about when and how much to cut rates. Some officials favor immediate rate cuts to boost the economy, while others prefer to wait and see how the economy evolves before making any changes. President Trump has repeatedly called for the Fed to cut rates, but the Fed is an independent body and its decisions are not dictated by the president. Despite earlier expectations for more aggressive rate cuts, projections have been scaled back, with potential for one or two 0.25% cuts later in 2025.
Bitcoin is seen as a potential hedge against these macroeconomic risks. Some analysts believe that as investor confidence in the dollar weakens, Bitcoin will become more attractive as a store of value. Bitcoin has shown an inverse correlation with the U.S. dollar, meaning that when the dollar weakens, Bitcoin tends to rise. This is because a weaker dollar signals inflation and devaluation fears, driving capital towards assets like Bitcoin that are scarce. Institutional adoption of Bitcoin is also increasing, further supporting its potential as a safe-haven asset.
However, the Bitcoin bull market is missing retail demand, on-chain data shows a fragile bull market.
While Bitcoin's volatility has decreased over the years, it remains higher than traditional assets like gold. Geopolitical events, regulatory changes, and shifts in Fed policy could also impact Bitcoin's price.
