Bitcoin drops as oil rises

Bitcoin was last down 0.9% to $78,533.7

Bitcoin fell on Tuesday, as risk sentiment took a hit from higher Federal Reserve rate hike expectations and rising oil prices. The cryptocurrency touched an over three-and-a-half month high last week, peaking at over $82,000.

Bitcoin was last down 0.9% to $78,533.7 by 20:50 GMT.

Bitcoin posted a huge 22.2% gain in the penultimate week of August, largely on the back of positive U.S. regulatory developments and a so-called debasement trade sparked by the U.S. Treasury’s intervention move to cap rising longer-term yields. The crypto has since extended those gains, peaking at an intraday high of $82,178.6 on September 3.

However, a strong August jobs report on Friday dented that momentum, with 162k nonfarm payrolls added in the month, nearly triple of the anticipated 55k figure. The data hinted at a highly resilient U.S. labour market and, combined with stubbornly high inflation, pointed to an overheating economy besieged by price pressures.

In such a scenario, a central bank typically considers tightening policy. Market participants reflected those expectations by boosting their odds for a quarter-point rate hike by the Federal Reserve later this month, which currently stood at around 60%, as per the CME FedWatch tool. Higher rate environments tend to weigh on speculative assets such as crypto.

A spike in oil prices has also exacerbated inflation concerns, after Iran and the U.S. returned to strikes for the first time since July. The action continued over the weekend, with U.S. on Saturday attacking Iranian crude oil carriers in retaliation for Iran’s attacks on two U.S. Navy warships patrolling regional waters.

Despite the macro uncertainties, higher oil prices, a potential September rate hike, and a strengthening in the Japanese yen, crypto options markets remain bullish, Thahbib Rahman, research analyst at Block Scholes, said.

While not near the highs of mid-August and early September, after the U.S. Treasury’s bond interventions and Fed Governor Waller’s dovish speech, short-dated BTC put-call skew remains tilted towards call options. This means investors are leaning more bullish than bearish and is an indication that traders are willing to pay more for upside exposure to spot price than downside protection, he added.