The cryptocurrency market continues to remain in a state of uncertainty, and recent events clearly demonstrate that even positive signals from the Federal Reserve are not always able to reverse a negative trend. Expectations of monetary policy tightening have declined, but instead of rising, bitcoin has gone into a nosedive, and the reasons for this run deeper than they seem at first glance.
Why bitcoin is ignoring the Fed's "dovish" signal
Over the past week, the market has noticeably revised its expectations regarding the regulator's actions. The probability of a rate hike in September has fallen from 52% to 30%, the yield on two-year Treasury notes has dropped from 4.24% to 4.17%, and the dollar index has declined to 99.5. All three indicators point to a easing of financial conditions — precisely the backdrop against which cryptocurrencies usually feel confident.
However, bitcoin has moved in the opposite direction, falling from $65,000 to $63,500. Such a reaction looks anomalously weak against such a noticeable shift in expectations. The reason for the divergence, in my view, is that geopolitical risks and the oil factor are currently outweighing the positivity created by softer monetary policy.
Oil at $90 — the main threat to the crypto market
The key factor to watch is Brent approaching the $90 per barrel mark. History shows: what is dangerous is not a short-term breakout above this level, but its consolidation there for a sufficiently long period, capable of fueling inflation expectations and Treasury yields.
So far, there is no such signal — five-year breakeven inflation remains virtually unchanged, at around 2.24%. But if oil consolidates above $90 or continues moving toward $100, the market's increasingly "dovish" expectations regarding the Fed will become less sustainable.
For bitcoin's short-term dynamics, I see two scenarios. If oil becomes cheaper and bond yields and the dollar continue to weaken, BTC will get a chance to make up for lost ground amid improving financial conditions. If oil remains expensive and inflation expectations begin to rise, bitcoin and Ethereum will continue to remain under pressure — despite the Fed's more favorable rhetoric.
My verdict: the market has currently priced in too optimistic a scenario for rates but is ignoring the oil factor. Until Brent retreats from the psychological $90 level, any positivity from the Fed will be only a temporary respite for cryptocurrencies, not a reason for sustained growth.