Bitcoin Crashes $3K as Hawkish Fed Ramps Up Rate Hike Odds

Bitcoin's recent rally from under $65,000 to over $81,000 hit its first major macro setback after Fed Chair Kevin Warsh delivered a hawkish message at Jackson Hole on Friday.

The speech, while not directly mentioning rate hikes, signaled that the Federal Reserve cannot simply declare victory on inflation. The PCE inflation gauge currently stands at 3.7% YoY, while its six-month annualized rate is even higher at 4.1%, both far above the central bank's target.

Warsh emphasized that the Fed's 2% inflation objective is 'firm and fixed' and argued that price stability won't simply restore itself without additional actions from the central bank. This hawkish tone sent markets into a tailspin, with traders assigning a one-third probability to a rate increase in September before the speech, but these odds jumped toward 60% after its conclusion.

The resulting sell-off extended to essentially all other financial markets, including stocks, precious metals, and other risk-sensitive assets. BTC dumped by $3,000 in hours after the speech's conclusion, slipping below $77,000 for the first time in almost a week.