Hawkish Fed outlook, Israel-Iran tensions weigh on crypto as rebound hopes hinge on H2: analysts

A hawkish interest-rate outlook and renewed tensions in the Middle East are pressuring bitcoin and other cryptocurrencies, although some analysts still see room for a rebound later this year.

The Federal Reserve is expected to leave its benchmark rate unchanged Wednesday, but futures now imply just one or two cuts in 2025, down from three or four at the start of the year. Traders also remain wary of tariff-driven inflation, which could keep policy tight for longer.

Valentin Fournier, lead research analyst at BRN, stated that volatility stemming from unchanged funding rates and the Israel-Iran standoff could further depress bitcoin prices. The uncertainty has throttled recent crypto ETF inflows, Fournier added.

“The combination of hawkish rate outlook, slowing ETF inflows, and rising geopolitical risk has turned short-term momentum negative,” BRN’s analyst told The Block via email.

“The market will closely watch the Fed’s language on future rate cuts, which may determine if the current dip deepens or finds support. Given this uncertain backdrop and positioning just below previous highs, we are de-risking. The path forward will likely be volatile, and any deterioration in the geopolitical landscape could trigger sharper downside moves.”

Hope for H2

Bitcoin fell below $103,000 after Israel’s airstrike on Iran last week and was trading around $105,000 on Wednesday, down alongside ether, XRP, and Solana, according to The Block’s price page . Still, 21Shares crypto research strategist Matt Mena argues that the backdrop could shift bullish if the Fed delivers its first cut in September, odds the market currently assigns to 65%.

Mena argued that capital rotation from traditional money markets may lead to substantial allocations to crypto ETFs if rate cuts occur in the third quarter.

“The S&P 500 is now less than 5% from its record high, and money market fund assets are at a record high of $7.5 trillion - capital that’s likely to rotate into risk assets like crypto as rates begin to fall,” he said.  “Combined with venture funding hitting a 3-year high, institutional participation is accelerating. With macro tailwinds building, the setup for Bitcoin and digital assets continues to strengthen heading into H2.”

For now, analysts agree the market remains hostage to Fed language and headlines from the Middle East, leaving prices range-bound until clearer signals emerge. Meanwhile, BTC options open interest remained near all-time highs, a possible sign of investor confidence.