For Bitcoin A bull market can feel like one setback after another. Precious metals like gold and silver surged to record highs, sucking money away from the cryptocurrency market. Now oil is also starting to surge, potentially tilting macroeconomic forces in favor of Bitcoin bears.
West Texas Intermediate (WTI), a light, sweet crude from Texas oil fields that serves as the benchmark for North American energy pricing, has risen 12% this month to $64.30 a barrel. This is the highest price since September. Brent crude, the European and international benchmark, also rose to $68.22.
This is bad news for Bitcoin bulls, who are counting on stable inflation and lower interest rates in the United States and the rest of the world to reignite Bitcoin’s rally. Bitcoin peaked above $126,000 in early October and has since fallen below $90,000.
Oil fuels inflation
Oil is a key ingredient in everyday goods and services, so when its price rises, it raises costs across the board. Rising gas prices make gasoline more expensive, raising the cost of shipping everything, including food delivery, clothing, electronics, and more. These costs are then passed on to final consumers, thereby increasing the overall price level in the economy.
This, in turn, leads to workers demanding higher wages to keep up with rising inflation, leading to a self-fulfilling cycle of higher wages and subsequent further price increases by companies.
“We find that the transmission of oil prices to inflation is economically and statistically significant and occurs both directly and through second-round effects,” Fed explainers said. “Higher energy prices also increase consumers’ and businesses’ expectations of future inflation, which indirectly increases food and core prices.”
Central banks typically respond to rising inflation by raising borrowing costs and pushing up credit and currency prices across the board, just as the Federal Reserve did in 2022 when it quickly raised interest rates to tame inflation. Bitcoin fell 64% that year, with so-called Fed tightening playing a major role in destabilizing the asset.
The recent rise in oil prices comes as the Federal Reserve grapples with fresh inflation concerns. On Wednesday, the central bank kept interest rates unchanged at its target range of 4.5% to 4.75% and said inflation remained “slightly higher” as President Donald Trump imposed tariffs on goods imported from abroad.
The accompanying statement and press conference suggested the Fed was “more confident that the policy easing cycle is nearing an end,” according to ING.
In other words, the Fed sees no rush to cut interest rates, and rising oil prices could solidify its stance against rapid liquidity easing.
Why are oil prices rising?
Concerns about Trump’s crackdown on major oil producer Iran, combined with shrinking U.S. inventories, are pushing oil prices higher.
In a Truth Society post on Wednesday, Trump said a massive Armada was heading to Iran and referenced Venezuela, where U.S. forces attacked earlier this month. He demanded that Iran reach an agreement on nuclear weapons or face “more serious” attacks from the United States.
Iran retaliated against Trump’s threats, vowing to “respond like never before” while underscoring the human and economic costs of potential U.S. adventures.
At the same time, data released by the U.S. Energy Information Administration (EIA) on Wednesday showed that U.S. oil inventories fell by 2.3 million barrels in the week ended January 24.
Falling oil inventories typically indicate demand exceeds supply, and refiners draw more from their inventories to meet demand.
