Bitcoin Rebounds Above $65,000 as Tensions Ease, But Fed Decision Looms Large

Bitcoin reclaimed $65,000 on Monday as tensions between the US and Iran subsided, allowing for a relief rally in risk assets. The largest cryptocurrency rose about 1% to $65,155, while Ethereum gained 4% to around $1,964, its highest level since early June.

The respite comes just before the Federal Reserve's meeting on Wednesday, which has the potential to either extend Bitcoin's rebound or put renewed pressure on it. The surge in oil prices above $100 last week has altered expectations for US interest rates, leaving investors uncertain about what to expect from the Fed.

The Fed funds futures now price a one-in-three chance of a 25-basis-point increase when policymakers conclude their meeting Wednesday, up from just 16% a week earlier. However, two-thirds of the market still expects the Fed to keep its target range unchanged at 3.50% to 3.75%, indicating that investors are divided on what the central bank will do.

A quarter-point hike would represent the clearest tightening surprise, while a hold paired with hawkish guidance could produce a similar repricing across rates markets. The Fed's decision will have significant implications for Bitcoin, as higher interest rates can reduce demand for assets without contractual yields and tighten financial conditions across markets.