Energy Constraints

Macro

One week into the Middle East escalation and there seems no tangible path to de-escalation. Trump's initial four-week timeline looks optimistic, with administration officials hedging that operations could extend significantly longer. As a result, Brent oil is up 26% on the week, driven by the market's fear over longer-term energy constraints.

Within oil markets, the concern is not only a closed Hormuz. It's also a compounding risk. The longer the conflict runs, the more likely critical energy infrastructure gets targeted. That changes the repair timeline and puts a structurally higher floor under supply disruption. Meanwhile, US producers have little incentive to bring additional supply online before that constraint becomes more structural.

The inflation read-through is becoming harder to dismiss. Core PCE printed at 3.1% annualised, payrolls came in at -92k, and unemployment is at 4.4%. The stagflation scenario is now the central case. That puts the Fed in an impossible position as it will be unable to cut aggressively into a softening labour market without risking a re-acceleration of already-sticky inflation. Markets currently price a single 25bp cut for 2026, pushed out to June at the earliest, a significant reprice from the roughly 50bp that were on the table as recently as February. Any notion of a Fed putting backstopping growth assets if things deteriorate is considerably less straightforward in this environment.

The FOMC decision Wednesday, alongside ECB, BoJ and BoE meetings the same week, is the most consequential single day for macro in months. The key question for all four is the same: how much does the oil shock constrain their ability to act? Powell's final press conference before his May departure will be closely watched by many investors including crypto.The immediate question for risk assets is how long this lasts. If it's a surgical, contained operation that wraps in weeks, the damage is absorbable. But if Hormuz stays closed and energy prices remain elevated, the second-order effects start to matter. Increasing energy prices can lead to more sticky core inflation. And sticky inflation means the Fed is more likely to stay on the fence. And as many crypto investors know by now after last year's rate-cut sensitivity, inflation and rate cut outlooks matter for risky assets.

Digital Assets: The Selling Pressure Breaks

After months of grinding lower, the market caught its first real breath. BTC rallied approximately 10% from Monday's lows across seven consecutive green daily candles, reclaiming $31k, with ETH following and holding above $2,000. The framing matters though: we are still roughly 20% below January's opening levels and fewer than 200 days from the all-time high. Which is important to remember as relief can sometimes be mistaken for a rally…

A clearer sign of some of the pressure coming off is the Coinbase BTC premium resetting. In December we flagged that the market couldn't move constructively higher until that happened, which is finally the case. This has been the longest sustained discount tracked over the past few months, at times feeling like selling. That dynamic is fading, and while it doesn't tell you where price goes from here, it removes a key structural overhang.

ETF flows added confirmation. Spot BTC products logged their first five-day inflow streak of 2026 at $767M, with Monday's $251M the strongest single day led by IBIT. ETH products followed with roughly $160M across four consecutive days. On the corporate side, Strategy added another 1,360 BTC while Bitmine announced a $128M ETH purchase, with the Ethereum Foundation selling 5,000 ETH to them directly via OTC. The institutional conviction story is intact. What's still unproven is whether this is structural accumulation or tactical buying at perceived support.

On the OTC desk, institutional flow made up the majority of notional traded, predominantly in majors. Buying picked up meaningfully in the mid-$60s, which looks like the level attracting the most consistent bid. Retail remains largely sidelined, which means the move is cleaner and less leverage-driven than prior rallies, but participation is narrow.

Derivatives are telling a constructive story too. BTC DVOL compressed from 61 to 51 on the week, volatility softening even as price rallied. The correlation with equities has also weakened noticeably since the conflict began, with BTC outperforming both tech and gold on a two-week basis.

Sometimes the simplest answer is the correct one. Every conventional store of value is struggling to do its job right now. Gold ran too hard with too much leverage and is working through margin calls and rebalancing. Treasuries remain jittery as markets price the risk of cuts into a higher inflation environment. BTC, by contrast, had already been bombed out ahead of the escalation and was screening cheap. When institutional buyers came back looking for a hard asset that hadn't already moved, crypto was the obvious destination.

Our take:

“The early bear market selling pressure looks to be behind us, but we need confirmation before calling a regime shift"

The setup is more constructive than it's been in months. The Coinbase premium reset, ETF inflows, and institutional desk flows all point in the same direction. The mid-$60s appears to have attracted a real floor of institutional bids. That's an important precondition.

That said, there’s some caution needed. For BTC, $74k and $80k are key resistance levels to watch. The cycle analog is also worth keeping in mind: peak-to-trough historically takes around 400 days; we're at fewer than 200. We believe this bear market will be shallower than prior cycles for structural reasons, stablecoin and RWA adoption, maturing institutional infrastructure, absence of anything fundamentally broken but that still requires realistic expectations about the pace of recovery.

For now, the selling pressure has cleared, institutions are accumulating, and the geopolitical backdrop is providing an unexpected narrative tailwind for BTC as a hard asset. Volatility will remain elevated. Watch central bank language this week, watch energy infrastructure headlines, and watch what BTC does if and when $80k gets tested.