Key takeaways:

• Investors abandoned gold and bonds for cash as war-induced spikes in oil prices and inflation forced the market to become defensive.

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• Rising yields and the chance of a 20% interest rate hike signal a tight outlook, leaving Bitcoin vulnerable to rising U.S. debt.

Bitcoin (BTC) retested the $67,500 support level on Monday, coinciding with the sharpest correction in gold prices in over 50 years. Fear of a prolonged war in Iran and the inflationary impact of oil prices remaining above $85 forced investors to reduce risk.

U.S. Treasuries also faced a sell-off during this period, suggesting investors were aggressively building cash positions. The yield on US 5-year Treasury bonds rose to 4.10%, setting a nine-month high as investors demanded better returns. As the S&P 500 hit its lowest level in more than six months on Monday, evidence points to a widespread rush toward liquidity.

Amid economic uncertainty, cash reigns supreme while Bitcoin faces further decline

Investors appeared to be stockpiling cash either to cover recent losses or to prepare for further price declines in risk markets.

The ongoing war in Iran has pushed oil prices above $90, creating inflationary pressures. The Wall Street Journal reported that the United States plans to deploy about 3,000 troops to the Middle East to counter Iran’s influence in the Strait of Hormuz. Part of the decline in gold prices was probably related to the waning of expectations for monetary policy easing in the US in the near future.

Bond market futures showed the implied probability of the Federal Open Market Committee (FOMC) raising interest rates by July increased to 20.5%, up from 0% just a week earlier. Investors expected the labor market to frosty as high interest rates continue to limit incentives for business expansion.

Technology stocks fall, inflation hurts consumers

US lawmakers debated allocating an additional $200 billion to support the war in Iran, According to to the Washington Post. Kevin Hassett, director of the U.S. National Economic Council, said $12 billion has already been spent. Lawmakers did not consent to war, and Congress showed growing concern about military strategy, According to to AP.

Meanwhile, the U.S. national debt has surpassed $39 trillion, pushing consumers even further toward a cost-of-living crisis. After Reuters, there was a fear of excessive speculative investments in the artificial intelligence sector reported that ChatGPT creator OpenAI offered private equity firms a guaranteed minimum return of 17.5% while the company remained largely unprofitable.

Some of the world’s largest technology companies, including Google (GOOG US), Meta (META US) and IBM (IBM US), have seen losses of 10% or more over the past six weeks. So, regardless of the acute correction in gold prices, investors became increasingly concerned about the risk of a recession or a acute rise in inflation above the 4% rate of return on fixed income.

Related: As volatility deepens, Bitcoin holders are shifting from panic to cash caching discipline

The combination of falling stock prices and persistent inflationary pressures explains why investors have aggressively sought the safety of cash positions.

Notwithstanding the favorable Bitcoin onchain metrics, broader macroeconomic conditions remained unfavorable for sustained bullish momentum. The decline in gold prices as investors withdrew from US Treasury bonds was a sign of risk aversion. The chances of a $66,000 retest remain a stern threat, at least until inflation and war spending keep U.S. monetary policy tight for an extended period.