Bitcoin drops below $77,000: How soaring oil prices and rising U.S. Treasury yields are reshaping the market landscape?

May 18, 2026, the crypto market suffers another heavy setback. According to Gate market data, BTC/USDT is trading at $76,984.7, down 1.56% over the past 24 hours, continuing the previous four-day decline, with an intraday low of $75,591. The Bitcoin Fear and Greed Index has fallen to 28, in the “Fear” zone. As of the week ending May 17, Bitcoin closed with four consecutive down days, and the overall market shows a reduction in positions. This round of correction is not due to internal structural changes within the crypto market but stems from triple macro shocks in traditional finance—rising oil prices, US Treasury yields breaking 5%, and the complete collapse of expectations for Fed rate cuts. These three forces, overlapping within the same time window, form a typical macro “risk asset de-leveraging” stress test.

How the Transmission Chain of the Triple Shocks Affects Bitcoin Pricing Logic

The surge in oil prices, rising US Treasury yields, and the breakdown of rate cut expectations are not three independent negative events but are interconnected macro transmission chains with causal relationships. The starting point is the ongoing escalation of geopolitical conflicts in the Middle East. According to Saudi Aramco, the Strait of Hormuz is effectively interrupted, with the market losing about 100 million barrels of oil supply weekly. As of May 18, WTI crude oil has risen for the third consecutive day, trading around $102.30, with a cumulative increase of 10.48% from May 8 to 15. The surge in oil prices directly boosts inflation expectations—US CPI in April rose 3.8% year-over-year, PPI soared 6%, far exceeding market expectations. Elevated inflation expectations force the market to reprice the Federal Reserve’s monetary policy path, leading to capital fleeing from the bond market, with US Treasuries experiencing widespread sell-offs and yields soaring. At the end of this transmission chain, risk assets like Bitcoin face increased pressure from rising risk-free interest rates: when the risk-free yield on holding US Treasuries approaches or exceeds the expected returns of risk assets, the motivation for safe-haven capital increases systemically.

How the Middle East Conflict and Oil Prices Drive Global Inflation Expectations

The evolution of the Iran situation is the starting point of the entire macro shock chain. On May 10, Iran rejected the US-proposed negotiation plan, and US-Iran peace talks stalled over nuclear disagreements. Subsequently, the UAE’s nuclear power plant was attacked by drones, and Trump warned Iran that “time is running out,” with military confrontations between the US and Iran intensifying. The effective blockade of the Strait of Hormuz not only impacts oil supply but also triggers a reassessment of supply chain long-term disruptions. Royal Bank of Canada expressed extreme skepticism about the “June reopening” of the strait, suggesting the crisis’s complexity may be underestimated. Enverus predicts that if the Strait remains closed for about three months, Brent crude oil prices in 2026 could stay around $95. The persistent high oil prices and their inflationary effects are spreading outward—from natural gas compression equipment to logistics costs, input-driven inflation pressures are pushing up US terminal commodity prices. For the crypto market, this means that the inflation narrative linked to oil prices will continue to exert downward pressure on asset valuations in the foreseeable future.

What Signals Are Released by the Breakthrough of the 30-Year US Treasury Yield Above 5%

The rapid rise of the 10-year and 30-year US Treasury yields is the most direct market signal of this round of shocks. As of the week ending May 18, the 30-year yield rose to 5.12% after Treasury bond auctions, the highest since 2007; the 10-year yield increased to 4.59%, hitting a nearly one-year high. Over the past month, the 5-year Treasury yield surged over 40 basis points, with US Treasuries experiencing widespread sell-offs. This yield level conveys two key signals. First, the market is digesting the expectation of “higher rates for longer”—a 30-year yield breaking 5% indicates the end of the era of cheap global capital, with a new normal of high rates, low growth, and high volatility being priced in. Second, the sharp increase in US Treasury yields is exerting systemic valuation pressure on global risk assets. When risk-free rates climb above 5%, the discount rates for stocks, cryptocurrencies, and other risk assets rise in tandem, accelerating capital flows from high-risk exposures to low-risk fixed income assets.

Why the Expectation of Rate Cuts Has Shifted from “Highly Probable” to “No Rate Cuts Within the Year”

Previously, the mainstream market expectation was that the Fed would begin a rate-cutting cycle in the second half of 2026, but the oil price shocks triggered by the Middle East conflict have completely altered this outlook. As of mid-May, CME FedWatch data shows a 95.0% probability that the Fed will keep rates unchanged through July, with only a 0.7% chance of a 25 basis point cut, and a 4.2% chance of a 25 basis point hike. LSEG data indicates that the market has fully priced in at least one rate hike before March 2027. Polymarket’s prediction market shows that the probability of “no rate cuts in 2026” has risen to 58%, effectively ruling out rate cuts within the year. The logic behind this shift is that input-driven inflation caused by rising oil and transportation costs is changing the Fed’s policy trade-offs. Fed Chair Powell himself is cautious about excessive easing, and market expectations for rates in 2026–2027 are being systematically recalibrated. For Bitcoin, the breakdown of rate cut expectations means that the previous “loose liquidity” narrative supporting crypto valuations is being replaced by a “continued tightening” logic.

How the Short Positions in Derivatives Markets Amplify Downward Price Pressure

Before this decline, the crypto derivatives market had already accumulated significant structural short pressure. The 30-day average funding rate for Bitcoin perpetual contracts has been negative for 67 consecutive days, the longest negative funding cycle since the 2020s. As of early May, the annualized cost of negative funding was about 12%, meaning shorts must continuously pay longs for holding positions. This abnormal short structure indicates the market has already bet on price declines in advance. When macro shocks are triggered simultaneously, the negative funding environment’s accumulated short positions create asymmetric leverage effects—once prices break key support levels, the profits from prior shorts turn into forced liquidations, further accelerating declines. Total liquidations over 24 hours reached about $700 million, with longs accounting for over 96%. This suggests that the main driver of this correction is not longs actively closing positions but rather forced liquidations triggered by macro shocks—shorts act as amplifiers in this process.

How Capital Flows in the Fixed Income Market Affect Crypto Assets

The surge in US Treasury yields is causing large-scale reallocation of capital within the fixed income market. After the 30-year yield broke above 5%, the risk-free annualized return on holding US Treasuries has reached a twenty-year high. For institutional investors, this makes increasing fixed income allocations more rational—risk-adjusted returns now outperform those of recent years. From a capital flow perspective, rising Treasury yields are systematically withdrawing capital from all risk assets, making Bitcoin more vulnerable without ETF net inflows as a buffer. On May 1, the US spot Bitcoin ETF saw about $630 million in net inflows, but sustaining this trend is difficult amid rising yields. Over a longer cycle, if capital outflows from fixed income are large enough, they could, after macro pressures ease, provide incremental capital for crypto markets—assuming macro pricing dynamics reverse.

Future Direction: Three Key Variables for Macro Turning Points

The current stage, where the triple shocks overlap, remains a period of pressure release, and the market finds it difficult to form a clear directional judgment in the short term. The following three variables should be continuously monitored. First, the navigation status of the Strait of Hormuz is the core driver of oil price movements. If shipping resumes, a rapid correction in oil prices could significantly cool inflation expectations and trigger a reverse in US Treasury yields. However, Royal Bank of Canada’s extreme skepticism about a “June reopening” indicates this path’s uncertainty. Second, the forward guidance from the Fed’s June FOMC meeting will be a key point for market expectation recalibration. Whether the signals suggest maintaining current policy or hint at future adjustments, new information is needed to reprice interest rate paths. Third, the internal technical structure of the crypto market—including total open interest, the recovery of funding rates, and ETF net inflows—will determine whether Bitcoin can effectively rebound once macro pressures ease.

Summary

Bitcoin’s four consecutive declines below $77,000 fundamentally reflect the macro triple shocks—escalating Middle East tensions pushing oil prices above $102, US Treasury yields breaking 5%, and the collapse of rate cut expectations—concentrated in crypto asset valuation. Rising oil prices trigger inflation expectations, widespread US bond sell-offs push up risk-free rates, and the breakdown of rate cut expectations severs the previously supportive “loose liquidity” narrative for risk assets. The combination of these shocks, along with the short positions accumulated in derivatives markets, forms the entire logical chain behind this decline. Currently, the market is in a phase of systemic macro pricing shift, with key variables focused on geopolitical developments and Federal Reserve policy paths.

FAQ

Q: What is the main reason Bitcoin fell below $77,000?

A: The main reason is the overlay of three macro shocks: ongoing Middle East conflicts pushing oil prices above $102, inflation expectations rising, and US Treasury yields breaking 5%, with market expectations for Fed rate cuts in 2026 essentially shattered. These factors collectively increased the opportunity cost of holding crypto assets, triggering systemic capital withdrawal from risk assets.

Q: What does the US Treasury yield breaking 5% imply for Bitcoin?

A: It indicates that the risk-free rate has reached a near twenty-year high. For institutional investors, the risk-adjusted return from holding Treasuries now exceeds many risk assets’ expected returns, leading to capital flows from high-risk exposures like Bitcoin toward fixed income. As a non-yielding asset, Bitcoin faces higher holding costs in a rising interest rate environment.

Q: Is there a direct link between oil prices and Bitcoin?

A: There is no direct pricing link, but an indirect connection through inflation expectations. Rising oil prices boost inflation expectations, which influence the Fed’s monetary policy path, and changes in monetary policy systematically impact the valuation of risk assets like Bitcoin. This is a macro factor–monetary policy–risk asset transmission chain.

Q: What is the long-term impact of the breakdown of rate cut expectations on crypto markets?

A: The breakdown means the “loose liquidity” narrative supporting crypto valuations is being replaced by a “continued tightening” logic. Markets will reassess the reasonable valuation range of crypto assets in a high-interest environment. In the long run, if inflation is effectively controlled and the Fed’s policy path shifts, crypto assets could regain valuation recovery space.

Q: What key indicators should be watched in the current market environment?

A: Focus on three dimensions: first, the navigation status of the Strait of Hormuz and oil price trends, as they are core drivers of inflation expectations; second, the direction of the 10-year and 30-year US Treasury yields and forward guidance from the Fed’s FOMC; third, the internal microstructure of the crypto market—such as open interest, funding rate recovery, and ETF net inflows—to see if macro pressures are easing and whether Bitcoin can rebound effectively.