Crypto investors

Thursday: The Crypto Market Freezes in Anticipation

Bitcoin BTCUSD ... appeared frozen in indecision on Thursday. The world’s largest cryptocurrency slipped only slightly—less than 1%—and settled at around $64,800. This followed several days of attempts to climb out of the hole it had fallen into earlier this month. Although Bitcoin has gained nearly 1.6% over the past week, the mood across the market is far from triumphant.

The problem is that cryptocurrencies are currently caught between two opposing forces. On one side are softer US inflation figures, which suggest that further interest-rate hikes may be put on hold, creating a more favorable environment for risk assets. On the other side is geopolitics, which is becoming more alarming by the day. Iran, military strikes, and the Strait of Hormuz are keeping investors on high alert and preventing them from celebrating even positive macroeconomic news.

Two Opposing Forces: Inflation and the Middle East

Let us examine exactly what is driving prices.

First, the good news: US consumer and producer inflation figures for June came in below expectations. For the market, this means that the Federal Reserve may be able to avoid rushing into further interest-rate hikes.

This is critically important for Bitcoin, which does not generate interest income. High interest rates have always put pressure on cryptocurrencies because investors prefer to keep their money in US dollar-denominated assets that offer attractive yields rather than in volatile digital assets. That source of pressure has now weakened.

However, a second and far more troubling factor has entered the picture. Exchanges of military strikes between the United States and Iran have continued for five consecutive days. Oil prices have risen, triggering a mechanism as old as the markets themselves: higher oil prices increase inflation expectations, and rising inflation may push the Federal Reserve toward tighter monetary...