The market expected that a softening of the Federal Reserve's rhetoric would be a powerful catalyst for the growth of risk assets, including bitcoin. However, reality turned out to be different: instead of a confident upward movement, the first cryptocurrency continued to decline, and this makes one think about the underlying reasons for what is happening. In my analysis, the key factor outweighing the positive from monetary policy is oil.
The paradox of bitcoin's reaction
Over the past week, we have observed a noticeable shift in expectations regarding the tightening of Fed policy. The probability of a rate hike in September fell from 52% to 30%, the yield on two-year Treasury bonds declined from 4.24% to 4.17%, and the dollar index weakened to 99.5. All three indicators point to softer financial conditions—exactly the backdrop against which cryptocurrencies usually feel confident.
Nevertheless, bitcoin went in the opposite direction and fell from about $65,000 to $63,500. Such a reaction looks anomalously weak against the backdrop of such a significant change in rate expectations. This suggests that the market is currently ignoring traditional monetary stimuli, and my attention is drawn to another, more alarming signal.
The oil factor as a dominant force
The main threat to the crypto market right now is Brent oil approaching the $90 per barrel mark. History shows that what is dangerous is not a short-term spike in price above this level, but its persistence there long enough to stoke inflation expectations and push Treasury yields higher. So far, five-year breakeven inflation remains almost unchanged, at around 2.24%, but if oil holds above $90 or continues moving toward $100, all the market's "dovish" expectations regarding the Fed will become extremely vulnerable.
For the short-term dynamics of bitcoin, I see two scenarios. If oil becomes cheaper, and yields and the dollar continue to weaken, BTC will get a chance to recover lost ground amid improving financial conditions. However, if oil remains expensive and inflation expectations begin to rise, bitcoin and Ethereum will continue to remain under pressure—despite all the favorable Fed rhetoric.
My comment: The market is entering a phase where the classic correlation with liquidity takes a back seat, giving way to macroeconomic supply shocks. Investors should closely watch oil quotes as a leading indicator for cryptocurrencies—in the coming weeks, it is they, not Fed meetings, that will determine the direction of movement.