The crypto market is still pricing in aggressive rate hikes for the 2026 cycle.
There have been no interest rate cuts so far this year. Inflation remained above the Fed’s 2% target in early Q1, keeping expectations for spending cuts low.
Then in March, the West Asian crisis pushed inflation up to 3.3%, the strongest monthly readings since May 2024, further reducing the likelihood of rate cuts.
Against this background, strong employment report led to a market reaction. According to the Bureau of Labor Statistics (BLS), the U.S. economy added 115,000 jobs in April, well above expectations of 65,000.
Unemployment stood at 4.3%, in line with forecasts. In short, the US labor market is still holding up well, with job growth exceeding expectations and unemployment remaining stable at forecast levels.
The market reaction was almost immediate.
According to the CME FedWatch Tool, the probability of a rate hike in 2026 rose to 20.8% after stronger-than-expected employment data. Markets are now leaning towards a more hawkish Fed outlook, with inflation still well above the 2% target.
In short, the crypto market is no longer just pricing in interest rate cuts. Instead, people are starting to price in the possibility of rate hikes in 2026.
Historically, rate increases tend to be bearish for risky assets. The logic is simple: higher interest rates increase financing costs and tighten liquidity, reducing capital flows into assets like crypto.
However, when combined with other factors, momentum can still tilt in favor of risky assets.
Crypto has an edge over gold in the humbling story
The ‘humiliation’ story seems to be shaping the second quarter cycle so far.
From a technical perspective, after three consecutive quarterly gains, the US Dollar Index (DXY) is down more than 2% so far in the second quarter. This doesn’t look like a fluke.
The Fed’s repeated liquidity injections have kept pressure on the dollar, capping Treasury yields by drawing capital away from the bond market. In this context, JPMorgan Chase’s view on Bitcoin [BTC] on gold, as a stronger debasing trade begins to gain real weight.
Supporting this, the BTC/XAU ratio rose 16.5% in the second quarter. Meanwhile, institutional flows follow this movement. BTC ETFs have already attracted $1.25 billion in net inflows. Another $720 million, and May could turn April into potentially the strongest monthly ETF print yet in 2026.
In short, macro liquidity is weighing on the dollar, and capital is turning into crypto, with Bitcoin gaining strength as a hedge against humiliation.
Against this backdrop, the 20% increase in interest rates is beginning to tilt the narrative further in favor of crypto.
The logic is simple: with high inflation still putting pressure on the US dollar, Bitcoin’s relative strength versus gold as a macro hedge, supported by ETF flows, strengthens its long-term prospects.
In this context, the $1.25 billion in ETF inflows so far in May could be the start of a larger trend.
Macro positioning is increasingly shifting in favor of crypto as liquidity conditions, inflation dynamics and interest rate expectations continue to support Bitcoin throughout the cycle.
Final summary
- ETF inflows and Bitcoin’s strength against gold show more capital moving into crypto as a hedge against demotion.
- Even with higher interest rate hikes and inflation, liquidity still supports crypto demand.