Why bitcoin’s “compressed” valuation may limit downside compared to equities.

Rising oil and gas prices are driving higher inflation expectations, prompting markets to reconsider Federal Reserve rate cut bets. Traders now assign nearly a 40% probability that the Fed will hold rates steady this year, up from under 3%, reflecting a sharp reversal in earlier expectations.

Bitcoin BTC $67,482.86 may have already priced in the impact of tighter monetary policy, leaving equities more exposed to macroeconomic shocks, according to asset manager Bitwise. The cryptocurrency has corrected below $70,000, down more than 23.7% year-to-date.

Geopolitical tensions and energy disruptions, particularly stemming from the U.S.-Iran conflict around the Strait of Hormuz, have fueled oil and gas prices, pressuring inflation expectations. On prediction markets such as Polymarket and Kalshi, traders have drastically reduced odds of rate cuts this year.

“Energy prices remain closely linked to inflation expectations,” said Luke Deans, senior research associate at Bitwise. “The recent surge has shifted monetary policy pricing, reversing previously anticipated Fed rate cuts toward expectations of renewed tightening.”

While equities have started to react—S&P 500 is down nearly 8% over the past month—Bitwise argues that bitcoin has already adjusted. The cryptocurrency has been trending lower since October 2025, reflecting its sensitivity to liquidity and investor risk appetite.

“Bitcoin, a highly reflexive and liquidity-sensitive asset, typically responds earlier to shifts in risk appetite,” Deans said. “Digital assets began factoring in tighter financial conditions ahead of many traditional risk assets. Relative valuation indicators support this dynamic.”

The Mayer Multiple, which compares bitcoin’s spot price to its 200-day average, has remained in the lower percentiles since January, suggesting BTC has already experienced a broad reset in expectations. In contrast, equities entered the year at elevated valuations and have only recently started repricing amid deteriorating macro conditions.

“Assets that have undergone substantial valuation compression tend to show reduced downside sensitivity as leverage and speculative positioning unwind,” Deans said. “Markets closer to cyclical highs, however, remain more vulnerable to negative macro shocks.”

Within crypto, bitcoin’s dominance has strengthened market correlations, creating a single-factor environment largely driven by BTC’s price.