September has seen a near-simultaneous tightening of monetary policy, as the European Central Bank, the Federal Reserve, and the Bank of Japan all raised key interest rates. In response, Bitcoin surged, with prices surpassing $85,000 for the first time since late January on September 21.
This market reaction seems paradoxical. Traditionally, "expensive money" is bad news for risk assets, and Bitcoin has long been influenced by macroeconomic trends. According to this reasoning, the regulatory decisions made in September should have led to a drop in cryptocurrency values.
Bull markets are typically fueled by cheap credit, but given the current conditions, such expectations are misplaced. Crypto investors often align their strategies with halving events, yet central banks seem to be operating on a different timeline.
Will the classic four-year cycle maintain its tradition while the monetary policies of major central banks dictate new rules?
The Three Hawks
On the evening of September 16, the U.S. stock market dipped, with the S&P 500 index nearing its lowest point since July.
Investors were not alarmed by the Fed's rate increase, which had been accurately predicted by analysts. Instead, the downturn was triggered by comments from Kevin Warsh. At a press conference, the Fed chair acknowledged that the cost of credit had not been restraining the U.S. economy leading up to the September decision. He indicated that the "expensive money" policy would remain relevant at least through the end of the year.
Warsh explained that the Fed had removed "stimulus" from the economy. He assessed that prior to September, monetary policy had been stimulating growth in the U.S. Meanwhile, inflation hit 3.4% in August, well above the target of 2%, which necessitated the regulator to cool demand.
Financial analysts refer to proponents of strict monetary policy as hawks, advocating for expensive loans to cool overheated markets and curb inflation. In September, members of the Federal Open Market Committee (FOMC) unanimously voted to raise rates, a shift from just three members supporting such a move at the end of July. Dot projections indicate that 16 out of 18 participants expect at least one more increase by the year's end.
The Fed is not alone in its hawkish stance. Just a week earlier, the ECB tightened monetary policy for the second time since the new conflict in the Middle East began . On September 18, the Bank of Japan raised its key rate to the highest level in 31 years.
Timeline of Central Bank Decisions
On September 10, the ECB raised its deposit and main refinancing operation rates to 2.5% and 2.65%, respectively.
On September 16, the Fed increased borrowing costs to a range of 3.75%–4%. Following the Fed's decision, Bitcoin gained around 1% in a single day, stabilizing above $76,000.
On September 18, the Bank of Japan raised its rate from 1% to 1.25%, with seven out of nine board members supporting the decision. Despite the increase in borrowing costs, the national currency weakened, with the dollar rising to approximately 157.2 yen.
Bitcoin prices and central bank decisions in September 2026. Source: ForkLog via Yahoo Finance.Why Bitcoin Remained Unfazed by Hawks
The rate hikes by the ECB, Fed, and Bank of Japan were not unexpected; each decision aligned with analyst forecasts.
In financial markets, there is a saying: "the early bird gets the worm." Investors looking to reduce risk in anticipation of rising borrowing costs had already adjusted their positions prior to the central bank meetings. Consequently, by the time the decisions were announced, the market had already priced in the expected moves.
The stock market reacted more to Warsh's signal about potential further tightening than to the rate increase itself. Bitcoin, however, showed little reaction to the Fed chair's comments, suggesting that its pricing may follow its own logic.
Regulators, Shorts, and Oil
Central bank decisions were just one of many factors influencing Bitcoin's pricing:
- On September 15, Bitcoin's price dropped to $75,000 following a failed procedural vote on the CLARITY Act in the U.S. Senate;
- In the early hours of September 19, Bitcoin surged to about $81,000, driven by a wave of short liquidations;
- The subsequent test of the $85,000 mark was linked by analysts to falling energy prices amid easing tensions between the U.S. and Iran.
The question remains: how long will the hawks maintain high rates? Much will depend on oil prices.
Where Inflation Comes From
At the press conference on September 16, Warsh faced a challenging question. How would raising rates by a quarter percentage point help contain prices driven by oil shortages, particularly in the Strait of Hormuz?
"We cannot influence the price of a specific commodity—be it oil or groceries. However, what we can and will do is prevent changes in relative prices from spreading further and causing second and third-order effects," he responded.
In simpler terms, the regulator cannot lower gasoline prices but can prevent fuel price hikes from impacting other goods and services.
The current wave of inflation did not originate from an overheated economy but rather from the Persian Gulf. The U.S.-Iran conflict has nearly paralyzed the Strait of Hormuz, which prior to the conflict accounted for about 20% of the world's oil supply.
Inflation in Numbers
In January, inflation in the U.S. was 2.4% year-on-year, rising to 3.8% in April and then dropping to 3.4% in August. The primary driver of this increase was energy prices, which rose by 16.3% over the past year.
Core inflation, on the other hand, slowed to 2.4%, matching the overall consumer price index from January. The difference between the two indices suggests that the rise in U.S. prices is primarily due to the increasing cost of oil and its derivatives.
On September 10, Brent prices spiked by 6.3%, closing at $107.63—the highest since May. That same day, drones attacked the East-West oil pipeline, which Saudi Arabia uses to export crude outside of the Strait of Hormuz, leading to a halt in oil flow.
Only on September 21, when Donald Trump hinted at a meeting with Iranian President Masoud Pezeshkian, did Brent prices drop by 3.4% to $100.34. The next day, prices fell below $100.
The Eurozone and the Echo of the Oil Shock
The macroeconomic situation in the Eurozone is more concerning. According to ECB economists' projections, overall inflation is expected to reach 3% in 2026, then slow to 2.5% and 2.1% in 2027 and 2028, respectively.
The decline in these figures is primarily a result of simple arithmetic: inflation compares current prices with a base established a year prior. When high oil prices become entrenched, they will eventually factor into both the current calculation and the comparison base. The gap between them will narrow, thereby lowering the final figure—even if oil prices do not decrease.
Core inflation behaves differently. The ECB expects it to accelerate to 2.6% by 2027, up from 2.5% currently. Back in March, the regulator projected only 2.2% for that same period.
The delayed response of this metric can be explained easily. High energy costs increase transportation, production, and service expenses. Companies gradually incorporate these costs into the prices of goods not directly linked to oil. This process takes months, which is why core inflation accelerates after commodity prices peak.
According to ECB economists, by 2028, the indirect effects of expensive energy will diminish, and the "price-wage" spiral is unlikely to gain full traction.
ECB's forecast for core inflation in the Eurozone for 2027. Source: ForkLog via ECB.The Price of Money
At the end of August, Bitcoin experienced its most impressive surge in months. Interestingly, this growth was likely driven not by news from the crypto industry but rather by what appeared to be a mundane technical operation from the U.S. Treasury.
On August 19, the department announced it would at least double the buyback of its own bonds maturing in 10 to 30 years. On the same day, the yields of U.S. government debt fell.
The crypto market reacted swiftly, with Bitcoin climbing more than 25% over the week, reaching above $80,000 for the first time since mid-May. Former BitMEX CEO Arthur Hayes even proclaimed the start of a new bull phase.
Why Bitcoin Tracks Bonds
The yield on government bonds essentially represents the cost of money for the entire economy. Mortgage, auto loan, and business loan rates are based on the performance of ten-year Treasuries . When a reliable asset yields around 5% annually, investors expect higher returns from riskier stocks and cryptocurrencies; otherwise, they might as well invest in debt securities.
Many media outlets compare bond buybacks to printing money, but that’s not entirely accurate. Typically, the department funds these operations with new short-term loans, meaning it pays off long-term bonds with the issuance of short ones. This does not increase the total money supply in the economy; it merely lowers the cost of borrowing over the long term.
Nonetheless, the Treasury's decision acted as a catalyst for a rally in the crypto market—suggesting that Bitcoin is sensitive not only to the liquidity volume in the economy but also to borrowing costs.
How the U.S. Treasury's decision impacted Bitcoin. Source: ForkLog.A Brief Respite
This effect was short-lived. On August 19, the yield on ten-year U.S. bonds fell to 4.65%, and thirty-year bonds dropped to 5.2%. However, soon after, investors questioned whether the Treasury would have the resources to sustain the suppression of borrowing costs.
To reassure the market, Treasury officials indicated that they might fund the buyback using their account at the Fed, which held about $950 billion. In this scenario, money would indeed flow into the financial system.
By mid-September, the yield on ten-year bonds had reached 5%, the highest since 2007. On September 15, Bitcoin prices dipped to $75,000, influenced by both the CLARITY Act setback and the bond market dynamics.
The August surge in Bitcoin's price was also aided by forced liquidations. On August 20, exchanges liquidated around $3 billion in positions, with approximately $2.7 billion of that being on short positions. It remains unclear how much of the price increase was driven by the Treasury's decision versus forced buying from short sellers.
The Connection Between the Yen and Bitcoin
At the end of July, the Japanese yen fell to its lowest level in nearly 40 years, prompting Tokyo to intervene to support its currency alongside Washington.
The U.S. participation in currency interventions is straightforward. Japan is the largest foreign holder of Treasuries. To buy yen in the market, Tokyo needs dollars, which can be quickly obtained by selling off U.S. government debt. Mass bond sales would push yields up and negatively impact all risk assets, including Bitcoin.
For crypto investors, the yen is also significant for another reason. The carry trade strategy has long been popular. For decades, Tokyo has struggled with deflation, keeping the cost of borrowing in yen near zero. Many traders believed that these "cheap funds" flowed into stocks and cryptocurrencies.
This creates fear of the Bank of Japan: if the regulator tightens its policy, borrowing will become more expensive. Speculators would then close positions, causing risk assets to decline.
However, statistics challenge the significance of the carry trade factor for the crypto market. If Bitcoin were truly fueled by cheap yen, its prices would rise as the Japanese currency weakened.
In reality, the opposite has occurred. According to CoinDesk, the 52-week correlation of Bitcoin with the USD/JPY pair fell to -0.9 in June — the lowest negative value since late 2022. In other words, when the dollar strengthened against the yen, Bitcoin typically weakened.
Analysts at CoinDesk suggest this is due to the dollar's influence: a relatively stable U.S. dollar pressures both the yen and Bitcoin, while its weakening supports both.
Thus, it appears that for the crypto market, the USD/JPY exchange rate serves not as a source of "cheap money" but as a unique barometer of dollar liquidity.
Why the Yen Fell
This logic is further supported by the paradox on September 18: after the Bank of Japan's decision, the yen did not strengthen but instead weakened.
The Fed sets its rate as a corridor, so it is more convenient to take the midpoint for comparison. Before the September meetings, this midpoint was 3.625% versus 1% in Tokyo. After the decisions from both regulators, the American midpoint rose to 3.875%, while the Japanese rate increased to 1.25%. The difference remained at 2.625 percentage points, maintaining the incentive to borrow in yen and invest in dollars.
Moreover, only seven out of nine board members supported the Japanese regulator's decision. This split worried investors, making further rate increases appear less likely.
The gap between the Fed and Bank of Japan rates. Source: ForkLog via the Fed and Bank of Japan.The Cost of Saving the Yen
From July 30 to August 26, Tokyo and Washington spent a record 15.39 trillion yen—approximately $96.5 billion—to support the Japanese currency. The exact share of these costs borne by the U.S. is unknown.
Japan's foreign reserves decreased by $79.6 billion in August, partly due to asset revaluation. Nevertheless, Tokyo still holds about $1.1 trillion in U.S. Treasuries—more than any other nation.
Historical Check
Bitcoin's position at the start of this new rate hike cycle resembles that of 2022. The Fed began tightening in March, by which time Bitcoin had already lost about 40% from its November peak. In September 2026, the regulator resumed rate increases while Bitcoin traded approximately 40% below its all-time high.
Investors in the crypto space remember the resolution of the previous cycle well. After the first rate hike in 2022, Bitcoin surged approximately 18% in just 12 days, only to nearly halve in value afterwards.
However, there are significant limitations to such comparisons. The 2022 decline coincided with sell-offs in stocks, bonds, and metals, as well as upheaval within the crypto industry itself, marked by the collapses of Terra and FTX.
How Deep Can the Bottom Be?
Bitcoin has undergone only a few completed cycles, and with such a short history, it is difficult to establish reliable patterns. However, the scale of past declines is telling: in the last three bear phases, prices lost 75%–85% from peak to trough.
The current downturn is milder. In October 2025, Bitcoin reached an all-time high above $126,000, and by June it had fallen to around $58,000—a roughly 54% drop.
One explanation is that this cycle has not been marred by systemic failures. No major exchange has gone bankrupt, nor has any popular stablecoin lost its peg to the dollar.
In the spring, K33 Research identified February's low as the cycle's deepest point, suggesting that the restrained growth in 2025 anticipated a softer bear phase. In June, prices briefly dipped below $60,000.
The depth of Bitcoin's bear markets. Source: ForkLog via CoinGecko.The Bottom Does Not Wait for Easing
Another important detail from the past: the minimum in November 2022 occurred during the Fed's rate hikes, which continued until July 2023. The market turned not after a monetary easing but once it fully accounted for the upcoming cost increases in prices.
The scale of the Fed's actions, which the market was unprepared for, severely impacted Bitcoin's prices. For instance, in June 2022, the regulator raised borrowing costs by 0.75% in one go.
Conversely, a rate cut does not guarantee a price increase. In December 2025, the Fed eased monetary policy, but this did not lead to a rally in the crypto market .
Thus, changes in monetary policy alone do not determine the phase of the cycle; rather, it is crucial how much the regulator's actions diverge from market expectations.
Who is Buying Bitcoin Now?
On September 21, American spot Bitcoin ETFs attracted nearly $1 billion—a record daily inflow for the year. On that same day, Bitcoin prices exceeded $87,000.
It appears that buyers are returning to the market. The question remains: who is accumulating digital gold, and how sustainable is this trend?
Renewed Inflows
Exchange-traded funds are one of the primary channels for institutional money flowing into Bitcoin.
Back in February, this segment experienced its fourth month of outflows, with assets under management halving compared to October 2025. At that time, researcher Axel Adler formulated a simple criterion for a trend shift: ETFs need to close in the green for at least three consecutive sessions.
The situation did not change immediately in September. On September 15 and 16, during the Fed's meeting days, funds lost $450 million and $295 million, respectively. This was followed by three consecutive sessions of inflows on September 17, 18, and 21. Adler's criterion has technically been met.
Inflows into American spot Bitcoin ETFs in September 2026. Source: ForkLog via SoSoValue.Strategy is Not the Same
The largest corporate Bitcoin holder continues to accumulate reserves but at a much slower rate. From September 14 to 20, Strategy acquired 950 BTC for $75.7 million. In contrast, the company spent 2.3 times more on its own preferred stock buyback—$174 million—during the same period.
This summer, Strategy even sold digital gold—around 3,600 BTC in late June and early July to pay dividends on its preferred stock. Currently, it holds 846,000 BTC. Based on the scale of these transactions, the current rally seems unlikely to be entirely driven by the activities of Michael Saylor's company.
The Role of Shorts
The September increase is still largely fueled by forced buying. Similar to the previous week, during the surge to $87,000, the majority of liquidations were from short positions (of the $746.6 million in forced closures in one day, $647.9 million was from short trades).
At the same time, open interest increased by 7.6% to $156 billion. Thus, traders did not exit the market but instead opened new positions.
Liquidations in the cryptocurrency futures market on September 21, 2026. Source: ForkLog via CoinGlass.What Blockchain Data Says
On-chain analysts have different interpretations of the current market phase.
Right after the Fed meeting, an expert known as Crypto Dan noted a sharp decline in the share of coins purchased at prices above the current level. He suggested that a similar pattern was observed at the end of previous bear phases.
Conversely, an analyst using the pseudonym Darkfost pointed out a drop in the bullish sentiment indicator, the Bull Score Index, from 80 to 30 points within just a week.
Since September 16, the day of the Fed's rate decision, Bitcoin's price has increased by over 10%. At the beginning of the month, CryptoQuant indicated that the $83,000 level was the dividing line between a rebound and a full bull market; currently, digital gold is trading above that mark.
Conditions for a New Rally
Expectations among crypto market participants and macro analysts are noticeably divergent.
Traders on Polymarket estimate the chances of Bitcoin reaching $100,000 by the end of 2026 at 43%. Just on September 18, when the cryptocurrency was trading around $81,000, this probability was only 25%. In just a few days, the metric nearly doubled.
In contrast, economists surveyed by Bloomberg are much more cautious, not expecting a rate cut from the ECB until December 2027. In other words, "cheap money" in the Eurozone is not anticipated for at least another year.
What to Expect from Central Banks
According to the same economists, the Eurozone central bank will pause in October and raise the deposit rate to 2.75% in December, stopping there. Market participants expect more: prices are factoring in at least three hikes over the next twelve months.
However, the regulators are not making any commitments. Gabriel Makhlouf, Governor of the Central Bank of Ireland, described each meeting of the governing council, including the October one, as "live" events.
The next Fed decision is due on October 28, followed by the ECB's announcement the next day.
Four Scenarios
There are at least four scenarios for Bitcoin, each with signals that could confirm or negate them.
Oil Retreats. If negotiations between the U.S. and Iran reduce the risk premium in oil, expectations for further rate hikes will ease. Confirmation would come from Brent prices remaining consistently below $100 and a slowdown in overall U.S. inflation.
Institutional Demand. Bitcoin ETFs continue to attract funds regardless of central bank decisions. A signal would be a net inflow into funds for several consecutive weeks.
Prolonged Shock. The Hormuz conflict continues, high energy prices drive core inflation, and both the Fed and ECB raise rates in October and December. In this case, Treasury yields would stay above 5%, continuing to pressure risk assets.
Derivatives Overheating. Traders increase positions following price growth. If open interest continues to rise faster than prices, any correction could trigger a cascade of liquidations—this time affecting long positions.
Four scenarios for Bitcoin. Source: ForkLog.New Cycle Rules
September has shown that Bitcoin remains tied to macroeconomics—albeit with a different response mechanism. Anticipated rate hikes were already priced in, with the market reacting sensitively to the decline in long-term borrowing costs, dollar dynamics, and oil news. It appears that the trajectory of Bitcoin's prices is primarily dictated by the cost of money and the degree of surprise in regulatory decisions.
Halving still influences the supply dynamics of digital gold, but its impact on prices seems to be waning. For instance, the latest reduction in the emission rate did not prevent Bitcoin from losing more than half its value in this cycle. Meanwhile, the September turnaround was largely driven by institutional demand, falling oil prices, and widespread short liquidations.
However, it is too early to dismiss the cyclical factor. The peak of the current cycle, as before, occurred approximately a year and a half after the halving, followed by a bear phase. The fact that this phase appears milder than previous ones is largely attributed to the absence of major exchange bankruptcies and the stability of popular stablecoins.
The key variable remains oil. As long as the Hormuz conflict sustains high energy prices, central banks are unlikely to abandon their "expensive money" policies. This means the next bull phase will likely lack the customary fuel of cheap liquidity, with price increases expected to be gradual and relatively stable.
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