Bitcoin caught between two risks

2 June 2025

Bitcoin Caught Between Institutional Optimism And Macroeconomic Risks — Is A Correction On The Horizon?

Written by Linh Tran, Market Analyst at XS.com

Bitcoin ended May with an impressive gain of nearly 11%, strongly fueled by inflows into spot Bitcoin ETFs—one of the key drivers that reaffirmed institutional investors’ confidence in this digital asset class. However, following an extended rally since mid-April, the market is now showing clear signs of cooling.

After ten consecutive days of net inflows, spot Bitcoin ETFs unexpectedly recorded net outflows on both Thursday and Friday last week. This shift reflects growing profit-taking sentiment as prices reached elevated levels, and also signals increased investor caution amid resurfacing macroeconomic risks.

In addition to ETF flows, the crypto market—which is highly sensitive to interest rate expectations—has also been influenced by the latest U.S. economic data. The Conference Board’s Consumer Confidence Index for May jumped to 98.0, significantly higher than expected, indicating that household spending remains resilient. Meanwhile, the core PCE price index for April— the Federal Reserve’s preferred inflation gauge—rose 2.5% year-over-year, down from 2.7% in March, signaling that inflationary pressures are gradually easing.

However, this doesn’t necessarily mean the Fed will immediately pivot to a rate-cutting cycle. The latest FOMC meeting minutes show that policymakers remain cautious, and markets are currently only pricing in the possibility of rate cuts beginning in late Q3. With interest rates still elevated, risk assets like Bitcoin may struggle to maintain their upward momentum without fresh catalysts.

Another factor weighing on Bitcoin is the renewed emergence of global trade tensions. A U.S. federal appeals court recently reinstated most of the import tariffs previously imposed by former President Donald Trump. In addition, Trump announced plans to double tariffs on steel imports, sparking concerns that a new round of U.S.-China trade conflicts may be on the horizon.

These developments have had an immediate negative impact on market sentiment, particularly on risk assets such as tech stocks and cryptocurrencies, which have increasingly shown a strong correlation. In fact, Bitcoin’s recent price action has closely mirrored that of the S&P 500, with both weakening after testing key resistance zones and facing short-term correction pressures.

At present, Bitcoin stands at the crossroads of two opposing forces: institutional inflows continue to support the medium-term bullish case, while macroeconomic uncertainty and unclear monetary policy outlook present short-term headwinds. After an extended phase of euphoria, a period of healthy correction may be both necessary and constructive—allowing the market to cool off before establishing a more sustainable trend.