Nine months ago, bets were made on four interest rate cuts; now the baseline scenario has shifted to four rate hikes before mid-2027.

Written by: Billy Bambrough, Forbes

Translated by: AididiaoJP, Foresight News

This year, Bitcoin has been operating amid repeated swings in macro expectations. Prices have fluctuated significantly: traders initially bet that the U.S. Treasury would intervene to rewrite liquidity, prompting last month's rebound in Bitcoin; soon after, market attention quickly returned to the Federal Reserve. The rate path has become the primary variable for short-term pricing.

Over the past month, Bitcoin has risen by about 20%. This increase is not insignificant, but during the same period, some small-cap cryptocurrencies have risen even faster, with market expectations even reaching a 500% increase. However, market sentiment has not loosened as a result. Treasury Secretary Scott Belsante just issued a stern warning; on another front, billionaire Stanley Druckenmiller, who has close ties to current Federal Reserve Chairman Kevin Walsh, has been reported to state that rate cuts "are no longer necessary."

This statement has garnered attention not only due to the speaker's prominence but also because of his close relationships within Washington's monetary policy core. Druckenmiller is the mentor of both Walsh and Belsante. The market's focus on him is essentially an observation of the rivalry between three forces: the White House希望lower interest rates, the bond market希望stabilize long-term yields, while the Federal Reserve wants to control inflation. It remains unclear which side is currently dominant.

Trump has consistently pressured the Federal Reserve to cut rates. Based on traders' experience, rate cuts typically mean lower funding costs and an improved environment for risk assets, with Bitcoin often classified as the same type of asset. However, the problem is that the current market pricing direction contradicts the president's demands.

According to a report from the Financial Times citing anonymous sources, Druckenmiller stated this week at a closed gathering of Wall Street executives: "Those in the Federal Reserve who still say the federal funds rate is tight are ridiculous." He also said, "I trust common sense; just look at global asset prices." The implication is very direct: global risk and financial asset prices are no longer cheap, and using "tight rates" as a reason for cutting rates is untenable.

He also mentioned that he is no longer allowed to communicate with Walsh but still described Walsh as one of his "closest friends" and an "outstanding Federal Reserve Chair." The closeness yet inability to communicate privately indicates that the political sensitivity surrounding the Federal Reserve Chair position has significantly increased.

Earlier this month, Druckenmiller co-authored a sharply worded critique in the Wall Street Journal, criticizing his former student for attempting to manipulate and suppress long-term Treasury yields. On one side, the White House and Treasury希望to lower long-term rates and reduce government financing costs; on the other, old-school macro traders believe that using unconventional means to suppress long-term rates will simultaneously push up inflation expectations and asset bubbles. Bitcoin is caught in the middle: it benefits from liquidity but fears that interest rate hikes will siphon off that liquidity.

The Federal Reserve is not a monolith. FOMC members Anna Paulsen, Michael Barr, and Lisa Cook currently lean dovish. However, Barr left room early this month, stating that if data shows inflation is not cooling, he could accept rate hikes. Doves do not necessarily advocate for rate cuts but tend to prefer waiting; once the data strengthens, positions may change rapidly.

The market is no longer willing to wait. According to the CME's "FedWatch" tool, traders believe there is nearly a 90% probability of a rate hike next week. For the crypto market, this is almost a confirmation of direction: short-term trading focus is no longer whether there will be a rate cut, but how much, whether the dot plot is hawkish, and whether post-meeting communications are hawkish in tone.

Prices and oil prices pose significant constraints. Bitget Wallet research analysts stated in an email that the August Consumer Price Index (CPI) showed mixed signals and did not provide a clear dovish signal. "This report strengthens the case for a 25 basis point rate hike on September 16," they noted, while also presenting conditions for Bitcoin's continued rebound: stable Treasury yields, stable oil prices, and continued net inflow into spot ETFs. Lacking any of the three, the rebound resembles more of a relief rally rather than a new trend. Technically, they set near-term support around $75,000 to $76,000, viewing $80,000 as the first important hurdle above.

Other data also supports the same direction: in recent months, price pressures have not decreased as clearly as the market had hoped. Meanwhile, the war between the U.S. and Iran continues, with oil prices again hovering above $100 per barrel. High oil prices make it harder to suppress inflation expectations, further narrowing the Federal Reserve's "first loosen monetary policy" space. The rise in Bitcoin over the past month primarily stems from a correction after previous overselling and liquidity expectations from related Treasury trades; after hopes of rate cuts faded, whether this round of gains can be maintained will depend on this week's rate decision.

What truly makes macro traders feel a "change of tide" is the magnitude of the expected shift. Analysts at Kobeissi Letter wrote on X: "The shift we are currently witnessing is extraordinary." They provided the timeline: currently, the market's baseline scenario is for four rate hikes before July 2027; while earlier this year, the same period was pricing in four rate cuts. Over nine months, interest rate expectations have swung by 200 basis points. For bonds, equity markets, and Bitcoin, this is not a minor adjustment but a substantial shift in the entire pricing anchor.

They also made a more hawkish judgment: this is the most hawkish policy expectation since the Federal Reserve began its current rate hike cycle in March 2022. "The market believes 'higher for longer' has returned, and inflation will not disappear easily. Wednesday will be a lively day." The so-called "lively" does not only pertain to whether there will be a 25 basis point hike but also includes the Summary of Economic Projections (SEP), namely whether the dot plot and forecasts for growth, inflation, and unemployment will be adjusted upwards in tandem.

The logic familiar to crypto traders is not complex: the lower the interest rates, the higher the opportunity cost of holding cash, and funds are more willing to flow into Bitcoin, growth stocks, and high-risk tech stocks; the higher the rates, with the possibility of maintaining high levels, cash and short-term bonds become more attractive, and risk assets must prove they can withstand a higher discount rate. Bitcoin's rise over the past month does not mean it has decoupled from this logic; it merely means it has risen before the expected shift has fully taken place.

Tokyo Bitbank analyst Yuya Hasegawa offered a path judgment from a trading perspective for next week: overall, Bitcoin may continue to face upside pressure, with the market awaiting the FOMC. If the Federal Reserve raises rates or the updated SEP shows more committee members supporting further hikes within the year, an increase in short-term yields and a further flattening of the yield curve could add extra pressure to Bitcoin. Watch the near-term level around $75,500, which is the lower edge of the recent range. If it effectively breaks down, the gains accumulated in August may continue to unwind, with the next psychological level shifting to $70,000.

Considering a few lines of clues together, the picture is not complex: the White House wants to cut rates, the bond market wants to suppress long-term rates, inflation and oil prices are not cooperating, Druckenmiller openly states "stop pretending rates are too tight," the futures market has pushed the probability of next week's rate hike to nearly 90%, and macro research has rewritten the path for the next year from "four rate cuts" to "four rate hikes." Bitcoin just happens to rise to around $80,000, this "first test level."

What we are looking at next is not just whether there will be a rate hike. After the rate hike, whether the statement and dot plot define this action as "a one-off move to combat inflation" or "the first shot of a restart for higher for longer." If it’s the former, Bitcoin might still consider $75,000 to $76,000 as the lower end of a consolidation; if it’s the latter, the market will begin to seriously trade around $70,000 and reassess how much of the August rebound might be left.