The restrictive monetary policy pursued by the US Federal Reserve (Fed) and escalating conflict between Israel and Iran are exerting pressure on Bitcoin (BTC)
$
104,476and other cryptocurrencies. However, some foresee a possible significant rebound in the market in the second half of the year. With the Fed expected to keep interest rates unchanged, market participants eagerly anticipate future guidance from Fed Chair Jerome Powell. Yet, geopolitical uncertainties in the Middle East are negatively impacting short-term risk appetite.
Cryptocurrencies React to Fed’s Interest Rate Stance and Middle East Conflict
There is a strong expectation that the Fed will not change interest rates today. Nevertheless, futures markets predict only one or two interest rate cuts by the year’s end, a reduction from the earlier expectation of three or four. Investors are concerned about the potential inflation triggered by tariffs, which could keep monetary policy restrictive for a prolonged period, thus suppressing demand for cryptocurrencies.
BRN Chief Research Analyst Valentin Fournier warns that Fed’s decision to maintain the current interest rates, combined with increasing volatility from the Israel-Iran conflict, could further degrade Bitcoin’s price. Fournier notes this uncertainty has also slowed down fund inflows into ETFs, stating, “The continuation of restrictive monetary policy, slow ETF inflows, and rising geopolitical risks have turned short-term momentum negative.”
Fournier adds, “The market is closely monitoring the Fed’s stance on potential future interest rate cuts. This will determine whether the current decline deepens or stabilizes.” Considering the uncertain backdrop and positioning just below previous peaks, Fournier emphasizes risk reduction as geopolitical conditions continue to evolve unpredictably.
Hopes for a Recovery in the Second Half of the Year
Last week, Bitcoin initially fell below $103,000 following Israel’s airstrike on Iran. Tensions have since escalated, with Bitcoin currently trading around $105,000.
Leading altcoins such as Ethereum (ETH)
$
2,503, XRP, and Solana
$
146(SOL) also exhibit downward trends. Despite the current market landscape, 21Shares crypto research strategist Matt Mena remains optimistic. Mena believes that if the Fed cuts interest rates in September, the outlook could become positive, with the market presently pricing a 65% chance of such a cut.
Mena suggests that if multiple rate cuts occur in the third quarter, capital returning from traditional money markets may significantly flow into crypto ETFs. He states, “The S&P 500 is less than 5% below its record highs, and money market fund assets remain at a record $7.5 trillion. As interest rates start to decline, this capital might shift to riskier assets like cryptocurrencies.”
Mena observes, “Additionally, venture capital funding has reached a three-year high, and institutional participation is accelerating. As we enter the second half of the year, the backdrop for Bitcoin and other cryptocurrencies continues to strengthen with increasing macro tailwinds.”
Analysts concur that the market remains dependent on the Fed’s interest rate decision announcements and news from the Middle East, with prices expected to move within a defined range until clearer signals emerge. Meanwhile, Bitcoin option open positions remain close to record levels, indicating a measure of investor confidence.
