Bitcoin’s slide below $81,000 exposes why a Fed pause may not save the crypto market

Market Sensitivity to Interest Rates

A pause in the Fed's interest rate decisions in October may not be enough to save the crypto market from further declines. The recent slide below $81,000 highlights the market's sensitivity to interest rate decisions and inflationary pressures.

Expectations for Further Rate Hikes

Despite the potential Fed pause, the market is anticipating further rate hikes by year-end and into 2027. The September FOMC minutes released on October 7 indicated that most participants viewed another rate increase by year-end as probable and left decisions dependent on data.

Inflationary Pressures and Oil Prices

Oil's inflation risk keeps the cost of capital elevated for risk assets, even if the Fed skips a meeting. The 10-year Treasury yield reached 5.305% on October 8, and the 2-year yield was at 4.821%. Brent crude was at $104.87 on October 8.

Market Implied Probabilities

Glassnode's October 7 report found that futures pricing assigned an 85% chance to at least one hike by December. The same pricing put nearly 80% on at least two hikes by March 2027 and 33% on three or more. The probabilities are cumulative and market-implied, with Waller adding that further hikes are probable if data evolve as expected and that they can skip meetings.

Consequences of a Fed Pause

An October hold moves the next increase later on the calendar while the path into 2027 stays steep. The consequences of a Fed pause would be a delay in the next rate hike, but the market would have to hold its structure through CPI and two Fed meetings on a thin base of buyers.