Crypto held firm as oil surged and markets priced fewer Fed cuts. Wintermute says lower leverage may limit forced selling pressure.
Crypto markets held firmer than most assets last week as geopolitical risks pushed investors toward a cautious stance. Rising tensions in the Middle East lifted oil prices and shifted expectations for U.S. monetary policy. Equity markets, bonds, and gold declined, while Bitcoin managed a small gain. Trading firm Wintermute said the divergence suggests pressure from forced sellers in crypto may be easing.
Oil Surge and Middle East Tensions Shift Fed Rate Cut Expectations
Conflict in the Middle East entered a second week without signs of easing. Initial expectations of a quick resolution now appear unlikely. Early estimates from officials suggested operations might last four weeks, but government sources now warn the timeline could extend further.
Meanwhile, Brent crude climbed 26% over the week as traders priced in supply disruptions. The U.S. said it would help protect oil tankers moving through the Strait of Hormuz and also offered insurance support for ships using the route.
Early reports suggested this could help oil shipments return to normal. However, the plan is proving difficult to maintain. Protecting and insuring ships costs a lot of money and requires major coordination.
Oil shipments through the strait are still limited. As a result, some Gulf producers are considering temporary oilfield shutdowns due to storage facilities near capacity. Storage tanks are already full because oil cannot be exported fast enough.
Saudi Aramco has already reduced output at two oilfields. The cuts are not directly caused by the conflict. Instead, producers simply have nowhere to store additional oil.
Higher oil prices also affect the wider economy. Energy costs feed directly into inflation, as measured by the Consumer Price Index (CPI). When energy prices rise, inflation becomes harder to bring down.
Because of this, the Federal Reserve may delay cutting interest rates. Traders currently price only one 25 basis point cut in 2026, likely in the fourth quarter. Two weeks ago, forecasts still ranged between two and three cuts.
Crypto Markets Show Strength Despite Global Risk-Off
Bitcoin showed resilience last week even as most global markets declined. BTC rose about 0.4% during the week, outperforming several major asset classes. Ethereum ended the period largely unchanged, while the broader altcoin market slipped around 0.4%.
Equities, bonds, and gold all recorded losses during the same period. Spot trading activity across crypto markets remains relatively subdued. Institutional participation has picked up slightly over the past week, though volumes are still far below levels seen earlier in the market cycle.
However, option markets show that traders are cautious. Implied volatility remains elevated, with DVOL hovering near the 60 range. Traders still favor downside protection, but interest in longer-dated call options is growing.
Rising oil prices have also renewed debate over Bitcoin’s potential as a store of value. Higher energy costs often contribute to inflation, prompting investors to consider assets that might hold value during periods of rising prices.
Bitcoin’s recent price behavior has drawn attention in that context. Many traders expected the asset to decline alongside other risk assets during the broader market selloff. Instead, the OG asset remained relatively stable.
Fed Policy Outlook Remains Key Catalyst for Crypto Markets
According to Wintermute, market structure may explain part of the resilience. Leverage in crypto derivatives currently sits near $60 billion. That figure is roughly half the levels seen during prior peaks.
Lower leverage reduces the risk of cascading liquidations during market stress. By contrast, the gold market has seen a larger build-up of speculative positioning.
Wintermute said the current environment suggests most forced selling in crypto may already have passed. Buyers remain cautious, but interest is growing among investors with a 12 to 18 month horizon.
Many traders see current price levels as attractive over that timeframe. Still, potential buying zones extend down toward the low $50,000 range for Bitcoin.
Meanwhile, adoption news continues across traditional finance. Regulatory progress in the United States is moving slowly but remains on track ahead of the midterm elections.
So far, price reactions to such developments have been muted. If correlations with equities weaken further, that gap between headlines and price action could narrow.
Market participants are now watching the next Federal Reserve policy meeting. Officials may provide clues about how geopolitical tensions could influence interest rate decisions.
