The market expected the Federal Reserve's softening stance to trigger a rally in risk assets, but bitcoin once again disappointed investors. Instead of recovering, the leading cryptocurrency continued its downward spiral, and the key reason lies not in monetary policy but in commodity markets.
Bitcoin's anomalous reaction
Over the past week, the probability of a rate hike in September has plummeted from 52% to 30%, the yield on two-year U.S. Treasury notes has dropped from 4.24% to 4.17%, and the dollar index has pulled back to 99.5. All three indicators traditionally signal a loosening of financial conditions—an environment in which cryptocurrencies usually feel most comfortable.
However, bitcoin ignored this positive backdrop and fell from roughly $65,000 to $63,500. Such dynamics look extremely weak against such a pronounced shift in expectations. The explanation is simple: geopolitical risks and the oil factor are currently outweighing the support created by softer monetary conditions.
Oil at $90—the main threat to the crypto market
The key factor to watch closely is Brent approaching the $90-per-barrel level. Historical experience shows that what is dangerous is not a short-term spike above this mark, but its persistence over an extended period. If oil holds above $90 or continues moving toward $100, inflation expectations will begin to rise, and along with them, bond yields, which will undermine the resilience of dovish expectations regarding the Fed.
For now, five-year breakeven inflation expectations remain stable at around 2.24%, so there is no alarm signal. But if oil settles at high levels, the situation could change dramatically.
Two scenarios for bitcoin
For BTC's short-term dynamics, I see two main paths. If oil declines and yields and the dollar continue to weaken, bitcoin will have a chance to catch up amid improving financial conditions. Otherwise—if expensive oil persists and inflation expectations rise—both bitcoin and Ethereum will remain under pressure, despite all the favorableness of the Fed's rhetoric.
My view: the market is in a phase of reassessing priorities. Investors no longer believe in monetary "rescue" as a panacea—real macroeconomic shocks, such as the energy crisis, have a far more direct impact on liquidity. Until oil stabilizes, any positive signals from central banks will be merely a temporary respite, not a trend reversal.