[IN-DEPTH ANALYSIS] Observing Bitcoin Price Trends from a Macroeconomic Perspective

Executive Summary

TradingKey - Following a rapid price surge and weaker-than-expected inflation data, Bitcoin has experienced a noticeable pullback since late May. Some economists and investors argue that Bitcoin is in a bubble, suggesting the world’s largest cryptocurrency may be entering a bear market. In this article, we analyse Bitcoin’s future price trajectory through four economic and policy perspectives: First, Economic Uncertainty (Bullish for Bitcoin): Amid ongoing uncertainty driven by Trump’s tariff policies, the U.S. economy is likely to continue slowing. In this environment, Bitcoin, much like gold, is expected to exhibit safe-haven characteristics, supporting its price. Second, Slowing Inflation (Bearish): While tariffs may push up supply-side prices, we believe a weakening economic outlook and subdued domestic demand will curb significant inflationary rebounds. Mild inflation diminishes Bitcoin’s appeal as an inflation hedge, partially restraining its price growth. Third, Federal Reserve Rate Cuts (Bullish): A “low inflation + low growth” environment will likely prompt the Federal Reserve to increase the pace of rate cuts. Lower interest rates reduce the appeal of holding cash, driving capital flows into Bitcoin and boosting its price. Last, Government Debt (Bullish): The continuous rise in U.S. debt raises concerns about its sustainability. Investors are increasingly seeking alternatives to dollar-based assets, with Bitcoin emerging as a viable substitute. This growing demand is expected to further elevate its price. After a comprehensive analysis, we believe that three favourable factors will overshadow a single adverse factor, supporting a continued upward price trend for cryptocurrencies, with Bitcoin at the forefront.

Source: TradingKey

Source: TradingKey

1. Recent Developments

From early April to late May 2025, Bitcoin experienced a significant rally. On 22 May, its price surpassed $110,000 per coin, reaching a new all-time high. This surge was driven by multiple factors, including a sharp decline in the U.S. dollar index due to Trump’s tariff policies, substantial purchases of Bitcoin ETFs by institutional investors, significant Bitcoin accumulation by companies like MicroStrategy, the increasing clarity of U.S. pro-crypto policies, and the ongoing effects of the Bitcoin supply halving.

Due to its rapid prior rally and weaker-than-expected inflation data, Bitcoin has seen a significant correction since late May 2025. On 30 May, its price dropped by 3%. This decline also dragged down other cryptocurrencies, including Ethereum, Ripple, Solana, Cardano, and Dogecoin. According to Coinglass, over 210,000 traders were liquidated across the crypto market on that day, with total liquidations amounting to $711 million. As a result, some economists and investors argue that Bitcoin is in a bubble, predicting a bear market for the largest cryptocurrency by market capitalization. We hold a contrasting view, expecting Bitcoin's price to still have room for growth. This article analyses macroeconomic trends as well as monetary and fiscal policies to assess Bitcoin’s future price trajectory.

2. Perspective 1 (Bullish for Bitcoin): Economic Uncertainty

Amid an economic landscape marked by uncertainty and a likely continued slowdown, Bitcoin is expected to exhibit safe-haven characteristics, similar to gold, supporting its price appreciation.

The ongoing impact of Trump’s tariff policies has cast significant uncertainty over the U.S. economic outlook. While recent data suggests the U.S. economy remains resilient, several hard data points indicate a shift toward weakness. In the first quarter of 2025, real GDP growth turned negative, recording a quarter-on-quarter annualized rate of -0.2% (Figure 2.1).

On the demand side, the Michigan Consumer Sentiment Index has declined for five consecutive months since late 2024. Personal Spending growth slowed from 0.7% month-on-month in March to 0.2% in April 2025 (Figure 2.2). Additionally, the Mortgage Market Index has been gradually falling since its peak on 9 April 2025 (Figure 2.3), signalling potential weakness in the real estate sector, which is closely tied to household wealth and the broader economy.

On the supply side, the ISM Manufacturing PMI has remained below the 50 threshold for three consecutive months. The ISM Non-Manufacturing PMI has been declining steadily since its peak in October 2024, with May 2025 data falling back into contraction territory (Figure 2.4).

Figure 2.1: U.S. GDP (%, q-o-q)

Source: Refinitiv, TradingKey

Figure 2.2: U.S. Consumer Sentiment and Personal Spending

Source: Refinitiv, TradingKey

Figure 2.3: U.S. Mortgage Market Index

Source: Refinitiv, TradingKey

Figure 2.4: U.S. ISM PMI

Source: Refinitiv, TradingKey

3. Perspective 2 (Bearish): Slowing Inflation

Amid a gloomy economic outlook, the Federal Reserve’s pause on rate cuts, and declining energy and food prices, both the U.S. CPI and PCE have been falling steadily since early 2025 (Figure 3.1). Looking ahead, many economists believe that high tariffs will increase the cost of imported goods, gradually driving inflation higher as their impact unfolds. The Michigan 1-Year Inflation Expectations index has been rising for several months, reaching 6.6% in May 2025 (Figure 3.2). However, we hold a different view. While tariffs may push up supply-side prices, a weakening economic outlook and subdued domestic demand are likely to curb a strong inflationary rebound. In the short term, inflation may fluctuate, but the trend toward the 2% target is expected to persist.

Historically, high inflation has driven Bitcoin price surges. During the inflationary period of 2021, Bitcoin demonstrated its anti-inflation properties, with its price rising from $35,000 to $61,000 (Figure 3.3). However, given our baseline assessment that the U.S. is unlikely to experience high inflation, moderate inflation levels are expected to somewhat restrain Bitcoin’s potential for explosive growth.

Figure 3.1: U.S. Inflation (%, y-o-y)

Source: Refinitiv, TradingKey

Figure 3.2: Michigan 1-Year Inflation Expectations (%)

Source: Refinitiv, TradingKey

Figure 3.3: Relationship Between Bitcoin and U.S. Inflation

Source: Refinitiv, TradingKey

4. Perspective 3 (Bullish): Federal Reserve Rate Cuts

When considering inflation’s impact on Bitcoin in isolation, the gradually declining CPI indeed poses a bearish pressure on its price. However, broadening the perspective to include the Federal Reserve’s monetary policy paints a different picture.

A “low inflation + low growth” environment is likely to prompt the Federal Reserve to increase the pace of rate cuts (Figure 4). Lower interest rates reduce the appeal of holding cash, driving capital flows into Bitcoin and boosting its price. A prime example is the 2020 Fed quantitative easing period, during which loose monetary policy propelled Bitcoin’s price from $10,000 to $60,000.

Figure 4: Fed Policy Rate (%)

Source: Refinitiv, TradingKey

5. Perspective 4 (Bullish): Government Debt

The dominance of the U.S. dollar as the global reserve currency has been gradually eroding, primarily due to the relentless rise in U.S. government debt. As of the end of May 2025, the U.S. national debt reached an unprecedented $36.2 trillion, doubling from a decade ago (Figure 5). Interest payments on this debt have now surpassed defence spending.

Looking ahead, if the U.S. government implements domestic tax cuts, such as those proposed in the "Big Beautiful Bill", the national debt is expected to continue growing. This persistent increase raises concerns about its sustainability, prompting investors to increasingly seek alternatives to dollar-based assets. Bitcoin is emerging as one such alternative, driving heightened demand and further pushing its price higher.

Figure 5: U.S. National Debt (trillion USD)

Source: Refinitiv, TradingKey