Bitcoin Is Holding Near 77,000 Dollars as Rate Rise Odds Climb, Which Is Better Than the Textbook Says It Should

Bitcoin opened Monday at 76,806 dollars and was at 77,873 by early morning in New York, according to Yahoo Finance's daily tracker. Ether opened at 2,476 and moved to 2,514. Neither number is remarkable on its own. What is remarkable is the context in which they are being held: the CME's FedWatch tool put the chance of a rate rise this week at 86.5 per cent on Monday morning, up from 69.4 on Friday, and oil is up more than eleven per cent in five sessions after the Saudi pipeline attack. Higher rates and an energy shock are, in the textbook, the two things a speculative asset with no yield should least enjoy.

The scorecard

Bitcoin is down 0.6 per cent on the day and 4.4 per cent on the week. It is up 21.1 per cent on the month, and down 33.8 per cent from a year ago and 39 per cent from its record of 126,198 dollars on 6 October last year. Ether is down 2 per cent on the day and 1.5 on the week, up 31.4 on the month, and down 47 per cent on the year from a record of 4,954 dollars last August. The month figures are the ones the bulls are pointing at. The year figures are the ones their accountants are pointing at.

What is holding it

Three things, in our reading. First, the rate rise is priced. A quarter point that everyone expects is not the same shock as a quarter point that arrives from nowhere, and bitcoin has spent a month climbing while the odds of this rise went from a coin toss to near-certainty. Second, the dollar is not doing what it usually does in a rate cycle. The dollar index was flat at 99.53 on Monday because the Bank of Japan is expected to raise on Friday and the European Central Bank is being pushed the same way by the same oil, so the differential that normally drains money out of crypto in a Fed tightening is not opening. Third, and least comfortable, the same fear that has gold at 4,291 dollars is doing some work here. When the ten-year yield is at five per cent because of a war rather than because of growth, a share of the money that leaves bonds looks for things that are not bonds.

What would change it

Wednesday. If the Fed raises and signals that it is done, the month's rally has room. If the dot plot shows a second rise in October, which futures already put at close to sixty per cent, the rate story stops being priced and starts being repriced, and a 4 per cent week could become a 10 per cent one quickly. Yahoo's tracker puts the mechanism plainly: "Higher rates will put at least a temporary lid on crypto-price growth." The asset that would notice first is ether, which has outrun bitcoin for a month and has further to fall back.

We wrote ten days ago, with bitcoin at 81,000, that the September rate decision was the only thing that mattered for the month. It still is. The price has given up four thousand dollars since then while the odds of the thing it feared went up by a third, which is a smaller move than the textbook would predict and a reminder that the textbook was written before a Gulf war put the oil price and the bond market in charge of every asset at once. Whether that resilience survives Wednesday afternoon is the trade.