Will Bitcoin’s $65,000 Relief Rally Hold? Fed Decision on Wednesday Could Flip the Script

Bitcoin reclaimed the $65,000 mark on Monday as a temporary de-escalation in US-Iran hostilities revived demand for risk assets ahead of a pivotal Federal Reserve meeting.

According to CryptoSlate data, the largest cryptocurrency gained roughly 1% to $65,155, while Ethereum rose 4% to approximately $1,964—its strongest level since early June.

The rebound coincided with Washington suspending its strikes on Iran and Tehran pledging to hold fire as long as the United States refrained. Brent crude slumped 6.5% to about $90.45 a barrel as investors trimmed the geopolitical risk premium embedded in energy markets.

The pause in tensions arrives just as crypto markets confront a new source of volatility. Oil’s surge above $100 a barrel last week has sharply reshaped expectations for US interest rates, leaving Wednesday’s Fed decision capable of extending the rebound or reigniting pressure on Bitcoin.

Oil Shock Fuels Hawkish Fed Overhang

The more immediate concern for Bitcoin is that last week’s energy shock has already shifted the Federal Reserve’s policy calculus.

Fed funds futures on Monday were pricing in roughly a one-in-three chance of a 25-basis-point hike when policymakers conclude their two-day meeting on Wednesday. That probability stood at just 16% a week earlier, underscoring how swiftly investors have recast the monetary policy outlook.

About two-thirds of the market still anticipate the Fed will leave its target range unchanged at 3.50% to 3.75%. Yet the prospect of an immediate rate increase has become difficult for risk assets to ignore, especially after higher energy prices pushed inflation concerns and Treasury yields back into sharp focus.

That repricing unfolded despite a consumer price index report that initially appeared to support a patient approach.

The CPI fell 0.4% in June month-over-month, the steepest monthly decline since April 2020. Annual inflation eased to 3.5% from 4.2% in May, while core inflation dropped to 2.6% from 2.9%, with core prices flat on the month.

Energy was a major driver of the improvement. The energy index tumbled 5.7% in June after rising in each of the preceding three months, as gasoline prices fell sharply.

That made the subsequent crude rally particularly significant because some of the disinflation observed in June was directly tied to cheaper energy.

The Fed is therefore entering this week’s decision with a different inflation picture from the one investors assessed when the July 14 CPI report was released.

The central question is whether policymakers interpret the latest energy shock as a temporary disruption or see signs of broader price pressure that would justify another borrowing-cost increase.

For Bitcoin, the distinction matters. Higher interest rates lift the return on cash and government debt while tightening financial conditions across markets—a combination that can dampen demand for assets that lack contractual yields.

The recent retreat in crude prices has eased some of that pressure, but it has not returned rate expectations to where they stood before last week’s escalation.

A Rate Hold Won’t Necessarily Settle the Debate

Even if the Fed opts to hold rates on Wednesday, Chair Kevin Warsh could keep tighter policy firmly in view.

The central bank left rates at 3.50% to 3.75% at its June meeting, with its statement explicitly citing supply shocks—including energy—as contributors to elevated inflation. Policymakers emphasized that inflation remained above the 2% goal and flagged energy as an area where supply disruptions were pushing prices higher.

The accompanying projections reinforced that shift.

The median Fed official projected the federal funds rate at 3.8% by the end of 2026, above the midpoint of the current target range. Nine of the 18 officials submitting projections placed their year-end rate above that midpoint, indicating a substantial bloc viewed at least one increase as appropriate before year-end.

Warsh has also provided less forward guidance than previous Fed leaders, weighing individual data releases and his assessment of incoming risks more heavily.

This makes Wednesday’s press conference unusually consequential.

A decision to hold rates could still weigh on Bitcoin if Warsh stresses that rising energy costs heighten the risk of persistent inflation or signals that policymakers are prepared to tighten soon. Markets already price in roughly a 77% likelihood of a rate increase by September.

A less hawkish stance would give the rebound more room to breathe. If the Fed treats the energy shock as temporary and signals a willingness to await further evidence before tightening, Treasury yields could surrender more of their recent gains and remove another hurdle for crypto and equities.

The range of possible outcomes leaves Bitcoin exposed to more than just the headline decision.

A quarter-point hike would be the clearest tightening surprise. A hold paired with hawkish guidance could produce a similar, though potentially smaller, repricing across rates markets. A hold accompanied by greater confidence on inflation would be the scenario most supportive of the relief rally that began Monday.

Thursday Data Could Rapidly Reset the Trade

Whatever signal the Fed delivers on Wednesday will face an economic test within 24 hours.

The Commerce Department is set to release its initial second-quarter GDP estimate alongside June personal income and spending data that include the Fed’s preferred personal consumption expenditures inflation measures.

The US economy grew at a 2.1% annualized rate in the first quarter, up from 0.5% in the final quarter of 2025.

The upcoming readings will provide investors with a clearer picture of whether the Fed is confronting resilient growth alongside persistent inflation or an economy starting to lose momentum.

Strong growth combined with firm inflation would give policymakers more leeway to keep rates restrictive or raise them further. Slower growth accompanied by softer inflation would strengthen the case for waiting.

A weaker economy alongside persistent price pressure would create a tougher backdrop for Bitcoin and other risk assets. The Fed would have narrower scope to support growth without risking another inflationary surge, potentially keeping financial conditions tight even as activity slows.

That makes Thursday’s data part of the same macro trade as Wednesday’s decision rather than a separate catalyst.

Bitcoin Traders Reduce Near-Term Hedging

Options traders are already positioning as though the immediate threat of another sharp decline has receded.

Glassnode data show Bitcoin’s options open-interest put-to-call ratio has fallen to roughly 0.52 from about 0.76 in late June. Calls now represent a larger share of outstanding positions, indicating that traders have scaled back some of the defensive positioning built up during the recent selloff.

The shift is even more pronounced in short-dated contracts.

One-week at-the-money implied volatility stands near 34.3%, compared with about 40.8% for six-month options. The upward-sloping volatility curve suggests traders are assigning relatively little premium to immediate market turbulence while still pricing greater uncertainty further out.

Bitcoin’s 25-delta skew reflects a similar divide. The one-week reading has dropped to around 4%, signaling much weaker demand for short-term downside protection, while three- to six-month readings remain in the 11% to 12% range.

This positioning points to a market that has grown more comfortable with the near-term outlook without fully dismissing the risks ahead.

That distinction fits the broader backdrop confronting Bitcoin.

The immediate geopolitical pressure has eased sufficiently to help the cryptocurrency recover above $65,000.

Nevertheless, the fallout from the earlier oil surge remains embedded in interest-rate expectations, and the pause between Washington and Tehran has yet to develop into a durable settlement.

A renewed escalation could quickly push energy and inflation expectations higher again. Continued restraint would give markets more opportunity to unwind the rate pressure accumulated during the conflict.

Before then, the Fed takes the next step.

Bitcoin has recaptured the level it lost as oil prices, yields, and geopolitical tensions intensified last week. Whether it can build on that recovery now hinges on whether Wednesday’s policy signal validates the relief trade or revives the tightening fears that drove the earlier selloff.

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