The market expected that a softening of the Federal Reserve's rhetoric would trigger a rally in risk assets, but bitcoin once again showed anomalous weakness. Instead of the anticipated rally, the leading cryptocurrency continued to decline, and the key reason lies not in monetary policy, but in commodity markets.
The Paradox: Rates Fall, but Bitcoin Gets Cheaper
Over the past week, market expectations for tighter Fed policy have noticeably weakened. The probability of a rate hike in September collapsed from 52% to 30%, the yield on two-year Treasury notes fell from 4.24% to 4.17%, and the dollar index slipped to 99.5. All three indicators point to easing financial conditions—exactly the environment in which cryptocurrencies usually feel most confident.
However, bitcoin went against the trend, dropping from $65,000 to $63,500. Such a reaction looks unusually weak against such a notable shift in expectations. The explanation is simple: geopolitical risks and the oil factor are now outweighing the support created by softer financial conditions.
Oil at $90—the Main Threat to the Crypto Market
The key factor to watch is Brent crude approaching the $90-per-barrel mark. History shows that what is dangerous is not a brief spike above this level, but its persistence there long enough to stoke inflation expectations and push Treasury yields higher.
So far, there is no such signal—five-year breakeven inflation expectations remain virtually unchanged, at around 2.24%. But if oil holds above $90 or continues moving toward $100, the market's increasingly "dovish" expectations regarding the Fed will become extremely vulnerable.
For bitcoin's short-term dynamics, I see two scenarios. If oil gets cheaper and bond yields and the dollar continue to weaken, BTC will have a chance to catch up amid improving financial conditions. If oil stays expensive and inflation expectations begin to rise, bitcoin and Ethereum will remain under pressure—despite all the favorable Fed rhetoric.
My view: the market underestimates the oil factor as a systemic risk for crypto assets. Until the commodity market stabilizes, any attempts at a bitcoin rally will be limited—investors should factor this into their strategies.