The Bitcoin faithful are reeling. That ascent to $86,000 has now corrected itself, and we find ourselves nearer to $83,700. And while HODLers will preach diamond hands, let’s be honest: Jerome Powell’s stagflation warning should have been a flashing red light for anyone betting big on Bitcoin's continued meteoric rise. The pullback was not the result of a single explanation, but rather a unique confluence of circumstances. These reasons had been bubbling under the surface for a long time. Those moving pieces were in place, you just had to be willing to look past the smoke and mirrors.
Tariffs = Inflation + Slower Growth
Let's cut through the Fed-speak. Powell’s concern about Trump’s tariffs (and the potential for future administrations to do the same) isn’t just some ivory tower economic theory either. It’s a more indirect, but nonetheless real, threat to your future purchasing power. Tariffs are taxes, plain and simple. They raise the price of all goods, causing inflation. This isn't rocket science.
Think about it. Businesses may absorb some of the tariff costs, that’s true, but eventually what happens is businesses are going to pass them on to you and me, the consumers. Our economy is already on a tightrope, and further inflationary pressure just adds to that fragility. This creates stagflation, an economic nightmare of high inflation and low growth.
What does Bitcoin enable when inflation blasts off but economy stops dead? It loses its luster as a risk asset. People become more risk-averse. They require actual cash – not wishful wagers – to buy for necessities.
Hawkish Fed Kills Crypto Liquidity
Powell’s fresh “hawkish” pivot means any near-term interest rate cuts are off the table. This news is truly the shot to the heart at the center of the crypto bull market. Much of the strength of bitcoin and other speculative assets have been driven by the expectations of easy money. In essence, the Fed is constantly printing dollars and devaluing the hard-earned currency of the people. As a consequence, investors are getting squeezed into riskier assets, including Bitcoin.
That narrative is crumbling. If the Fed really wants to fight inflation, it has to close those money spigots. In practice, that means less speculative liquidity sloshing around, less hot crypto money flowing in and creating upward pressure on Bitcoin’s multi-year price arc.
The analyst from CoinDesk, Stephen, pointed out that the bull case for crypto relies on liquidity and policy intervention, which seem less likely given Powell’s comments.
Higher interest rates. That's exactly what Powell signaled. And with rates higher, traditional investments such as bonds are more attractive, siphoning dollars away from riskier assets such as Bitcoin. That’s the recipe for a correction, not a continued rally.
Sound Money vs. Political Whims
Here's the unexpected connection: Bitcoin was initially supposed to be a hedge against government meddling and monetary mismanagement. The original allure of crypto — a decentralized, censorship-resistant currency, free from the whims of politicians and central bankers. Here we are, seeing Bitcoin’s price swing to the rhythm of Powell’s statements and tariff moves.
Because Bitcoin, for all its lofty, libertarian goals of decentralization, is very much at the mercy of macroeconomic trends. Yet it’s not immune to the wrath of inflation, rising interest rates, and the fallout from arbitrary and dangerous government policies.
The real problem isn't Bitcoin itself, but the false narrative that it's a magic bullet, a foolproof escape from economic reality. It's not. It’s an asset, to be sure, subject to the same forces of supply and demand, risk and reward, as any other investment.
The recent Senate Banking Committee’s approval of a bill to regulate stablecoin issuers is another example of excessive government intervention. In March, Powell suggested that banking regulation of crypto could be “somewhat rolled back.” The surging tide, unmistakably, is in the opposite direction — toward greater surveillance and regulation. This moves the goalposts even further on the original libertarian ideal behind Bitcoin in the first place.
Powell’s stagflation warning wasn’t just a one-off print. It was a wake-up call. Yet, it revealed Bitcoin’s inherent sensitivity to government policies and macroeconomic realities. If you thought Bitcoin was going to continue to rise, well, you were wrong. This, at a time when the economy is already stagnating—and the Fed is further tightening its noose on the money supply.
The fall was inevitable because it was rooted in a flawed understanding of Bitcoin's role in the broader economic landscape. Well, it’s time to toss the hopium and adopt a new vision—one that’s more realistic, and truth be told, more conservative. Emphasize the importance of fiscal restraint, not government overreach and intervention, and sound money. Only then can we craft a sustainable environment for Bitcoin to flourish in. We’ll need a similar approach to be applied to all our investments too. The current way, funded by just-in-time tariffs and debt-junkie easy money, only leads to waiting in the dark for doom and gloom.
The fall was inevitable because it was rooted in a flawed understanding of Bitcoin's role in the broader economic landscape. It's time to ditch the hopium and embrace a more realistic, and frankly, more conservative approach. Focus on fiscal discipline, limited government intervention, and sound money principles. Only then can we create a truly sustainable environment for Bitcoin – and for the rest of our investments, too. The current path, fueled by tariffs and easy money, leads only to uncertainty and disappointment.
