The market expected that signals from the Fed about a possible policy easing would act as a catalyst for growth in risk assets, but bitcoin once again went against expectations. Instead of recovering, the leading cryptocurrency continued to decline, and the key reason for this lies not in monetary policy, but in the dynamics of oil prices, which are approaching the critical level of $90 per barrel.
Over the past week, the probability of a rate hike in September fell from 52% to 30%, the yield on two-year Treasury notes dropped from 4.24% to 4.17%, and the dollar index weakened to 99.5. All three indicators point to a loosening of financial conditions—an environment in which cryptocurrencies usually feel confident. However, bitcoin ignored this positive momentum and fell from roughly $65,000 to $63,500.
The Paradox of the Reaction
Such dynamics look anomalous against the backdrop of such a noticeable shift in rate expectations. The explanation lies in the fact that geopolitical risks and the oil factor are now outweighing the support created by softer financial conditions. Investors are shifting their focus from monetary stimulus to real macroeconomic threats, and this is changing the balance of power in the market.
Oil—The Main Benchmark for Risk
The key level I am closely watching right now is Brent approaching $90 per barrel. History shows that what is dangerous is not a short-term break above this mark, but its persistence over a long period. It is precisely a sustained hold of oil prices above $90 that can stoke inflation expectations and push bond yields higher, which would become a serious obstacle for risk assets, including cryptocurrencies.
For now, five-year inflation expectations remain stable at around 2.24%, but if oil holds above $90 or continues moving toward $100, the market's "dovish" expectations regarding the Fed will become extremely vulnerable.
Two Scenarios for Bitcoin
For the short-term dynamics of BTC, I see two main scenarios. The first: if oil becomes cheaper, and yields and the dollar continue to weaken, bitcoin will get a chance to make up for lost ground amid improving financial conditions. The second: if oil remains expensive and inflation expectations begin to rise, bitcoin and Ethereum will continue to come under pressure—despite all the favorable rhetoric from the Fed.
My conclusion: the market has currently priced in too much optimism regarding the Fed's actions, ignoring the oil factor. Traders should watch the $90 level for Brent as a trigger that could determine the direction of BTC's movement over the coming weeks. If oil breaks through this level and holds above it, the correction in cryptocurrencies could turn out to be deeper than most market participants expect.