The market expected the Federal Reserve's "dovish" pivot to be the trigger for a rally in risk assets. However, bitcoin delivered an unpleasant surprise, ignoring the improvement in the macroeconomic backdrop and continuing its downward dive. The key issue, it seems, lies not in monetary policy but in commodity markets, where oil is confidently storming the $90-per-barrel mark.
What's happening with bitcoin
Over the past week, market expectations regarding the Fed's next steps have changed dramatically. The probability of a rate hike in September has collapsed from 52% to 30%, the yield on two-year U.S. Treasuries has dropped from 4.24% to 4.17%, and the dollar index has fallen to the 99.5 level. All three indicators signal a loosening of financial conditions—exactly the environment in which cryptocurrencies historically feel most confident.
However, instead of the expected rise, the leading cryptocurrency has shed roughly from $65,000 to $63,500. Such a reaction looks anomalously weak against such a significant shift in rate expectations. It seems that geopolitical risks and the oil factor are now outweighing the positive from monetary easing, neutralizing a significant portion of the support that softer financial conditions usually provide.
Oil at $90—the main threat to the crypto market
The key factor to watch closely right now is Brent crude approaching the psychologically important $90-per-barrel mark. Historical experience shows that what's dangerous is not a short-term spike above this level, but its persistence there for an extended period. It is precisely the sustained presence of oil prices in the $90+ range that can stoke inflation expectations and trigger a rise in Treasury yields.
For now, five-year breakeven inflation expectations remain stable, holding around 2.24%. But if oil consolidates above $90 or begins moving toward $100, the market's "dovish" expectations regarding the Fed will become extremely vulnerable. In that case, all the positive from the regulator's softened rhetoric will quickly be negated.
For bitcoin's short-term dynamics, I see two main scenarios. If oil starts to decline and bond yields and the dollar continue to weaken, BTC will get a chance to catch up amid improving financial conditions. However, if oil stays expensive and inflation expectations creep higher, bitcoin and Ethereum will continue to face pressure—despite all the favorable Fed rhetoric.
My comment: The market is entering a phase where traditional correlations are breaking down. Investors should stop viewing bitcoin as a purely "risk-on" asset and account for its growing sensitivity to the commodity factor. Until oil stabilizes below $90, any BTC rally will be limited in scope.