for bitcoins Bulls, it feels like one setback after another. First, precious metals like gold and silver hit record highs, sucking capital out of the cryptocurrency market. And now oil is starting to rise as well, threatening to skew macroeconomic forces in favor of bitcoin bears.
The price per barrel of West Texas Intermediate (WTI) crude oil, a type of light, sweet crude oil from Texas fields that serves as a benchmark for energy prices in North America, has risen 12% to $64.30 this month. This is the highest price since September. Its European and international benchmark, Brent, has seen a similar increase to $68.22.
This is bad news for bitcoin bulls who are counting on steady inflation and lower interest rates in the US and other parts of the world to reignite the rally. Bitcoin peaked above $126,000 in early October and has since fallen to below $90,000.
Oil fuels inflation
Oil is a key ingredient in everyday goods and services, so when its price increases, it increases costs across the board. Rising oil makes gasoline more expensive, raising transportation costs for everything, including deliveries of food, clothing, electronics and more. These costs are then passed on to the end consumer, raising the overall price level in the economy.
This, in turn, leads to workers demanding higher wages to keep up with rising inflation, creating a self-fulfilling cycle in which wages rise and companies raise prices even further.
“We find that the pass-through from oil prices to inflation is both economically and statistically significant, and that it occurs both directly and through second-round effects,” says the Federal Reserve explainer. “Higher energy prices may also raise consumer and business expectations about future inflation, indirectly raising current and underlying food prices.”
Central banks typically react to rising inflation by raising borrowing costs, making credit and money more expensive across the board, just as the Federal Reserve did in 2022 when it rapidly raised interest rates to control inflation. Bitcoin fell 64% that year, and the so-called Federal Reserve tightening played a major role in destabilizing the asset.
The latest oil price rally comes as the Federal Reserve grapples with fresh concerns about inflation. The central bank on Wednesday kept interest rates unchanged in the target range of 4.5% to 4.75%, and said inflation remains “somewhat elevated” due to President Donald Trump’s tariffs (taxes on goods imported from abroad).
According to ING, the accompanying statement and press conference suggested that the Federal Reserve is “more confident that the policy easing cycle is near a conclusion.”
In other words, the Federal Reserve sees no rush to cut rates, and rising oil could reaffirm its stance against rapid liquidity easing.
Why is oil rising?
Fears that Trump will hit Iran, a major oil producer, plus dwindling U.S. inventories are driving up oil prices.
In a Truth Social post on Wednesday, Trump said a massive armada was headed toward Iran and referenced Venezuela, which the U.S. military attacked earlier this month. He called on Iran to reach a nuclear weapons deal or face a “much worse” US attack.
Iran responded to Trump’s threat by vowing to “respond like never before,” while highlighting the human and economic cost of a potential American adventure.
At the same time, data from the US Energy Information Administration (EIA) released on Wednesday showed that US oil inventories decreased by 2.3 million barrels during the week ending January 24.
Falling oil inventories typically indicate stronger demand outstripping supply, causing refiners to draw more stock to meet needs.
