May 18, 2026: Crypto Markets Take Another Hit
According to Gate market data, BTC/USDT is trading at $76,984.7, down 1.56% over the past 24 hours, marking a fifth consecutive day of declines. During the session, Bitcoin briefly touched a low of $75,591. The Bitcoin Fear & Greed Index has dropped to 28, entering the "Fear" zone. For the week ending May 17, Bitcoin closed with four consecutive red candles, reflecting an overall trend of position reduction across the market. This round of correction is not driven by internal structural changes within the crypto market, but rather by a triple wave of macro shocks from traditional finance—surging oil prices, US Treasury yields breaking above 5%, and the complete collapse of Fed rate cut expectations. The convergence of these three forces within the same time window has created a classic macro stress test characterized by "risk asset deleveraging."
How the Triple Shock Transmission Chain Impacts Bitcoin’s Pricing Logic
The surge in oil prices, rising US Treasury yields, and shattered rate cut expectations are not three isolated negative events, but rather an interconnected macro transmission chain. The starting point is the ongoing escalation of geopolitical conflict in the Middle East. According to Saudi Aramco, the Strait of Hormuz is effectively shut down, resulting in a weekly market loss of about 100 million barrels of crude oil supply. As of May 18, WTI crude has risen for three consecutive days, trading near $102.30. Between May 8 and 15, WTI crude futures settlement prices climbed a total of 10.48%. The spike in oil prices has directly fueled inflation expectations—US CPI for April rose 3.8% year-over-year, and PPI surged 6%, both far exceeding market forecasts. High inflation expectations have forced the market to reprice the Fed’s monetary policy path. Capital is fleeing the bond market, triggering a broad sell-off in Treasuries and driving yields sharply higher. At the end of this transmission chain, risk assets like Bitcoin face mounting pressure from rising risk-free rates: when the risk-free yield on Treasuries approaches or even exceeds the expected return on risk assets, the incentive to seek safety systematically increases.
How Middle East Conflict Drives Global Inflation Expectations Through Oil Prices
The evolving situation in Iran is the starting point of this macro shock chain. On May 10, Iran rejected the US’s proposed negotiation plan, stalling US-Iran peace talks due to nuclear program disagreements. Shortly after, a UAE nuclear plant was attacked by drones, and Trump again warned Iran that "time is running out," escalating military tensions between the two countries. The effective blockade of the Strait of Hormuz not only disrupts crude supply but also prompts the market to reassess the long-term risk of supply chain interruptions. RBC has expressed extreme skepticism about the strait reopening in June, suggesting the market may be underestimating the complexity of the crisis. Research by Enverus predicts that if the Strait of Hormuz remains closed for about three months, Brent crude could average $95 in 2026. The inflationary effects of persistently high oil prices are spreading beyond the energy sector—from natural gas compression equipment to logistics and transportation costs, imported inflation is pushing up end-product prices in the US. For the crypto market, this means that the inflation narrative tied to oil prices will continue to exert downward pressure on asset valuations for the foreseeable future.
What Does the 30-Year US Treasury Yield Breaking 5% Signal?
The rapid rise in 10-year and 30-year US Treasury yields is the most direct market signal in this round of shocks. For the week ending May 18, the 30-year yield climbed to 5.12% after a Treasury auction, the highest since 2007; the 10-year yield reached 4.59%, a one-year high. Over the past month, the 5-year yield has jumped more than 40 basis points, with Treasuries facing broad-based selling. This yield level sends two key signals. First, the market is pricing in a "higher-for-longer" rate environment—30-year yields above 5% mark the end of the era of cheap global capital, ushering in a new normal of high rates, low growth, and heightened volatility. Second, surging Treasury yields are putting systemic valuation pressure on global risk assets. As the risk-free rate climbs above 5%, the discount rates for stocks, cryptocurrencies, and other risk assets rise in tandem, accelerating capital rotation from high-risk exposures into low-risk, fixed-income assets.
Why Have Rate Cut Expectations Shifted from "Highly Likely" to "Zero Cuts This Year"?
Previously, the market consensus was that the Fed would begin cutting rates in the second half of 2026, but the oil shock triggered by Middle East conflict has completely upended this outlook. By mid-May, CME FedWatch data showed a 95.0% probability that the Fed would hold rates steady through July, just a 0.7% chance of a cumulative 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 one rate hike before March 2027. On Polymarket, the probability of "zero rate cuts in 2026" has climbed to 58%, with markets essentially ruling out any cuts this year. The logic behind this shift is clear: imported inflation from higher oil and transport costs is altering the Fed’s policy calculus. The new Fed Chair, Walsh, is already cautious about overly loose policy, and the market is systematically recalibrating its rate expectations for 2026–2027. For Bitcoin, the collapse of rate cut expectations means that the previously supportive "easy liquidity narrative" for crypto asset valuations is being replaced by a "prolonged tightening" regime.
How the Bearish Structure in Derivatives Markets Amplifies Downward Price Pressure
Ahead of this downturn, the crypto derivatives market had already accumulated significant structural bearish pressure. The 30-day average funding rate for Bitcoin perpetual contracts remained negative for 67 consecutive days, marking the longest negative streak of the 2020s. As of early May, the annualized cost of negative funding rates was about 12%, with shorts continuously paying longs to hold positions. This abnormal bearish structure signaled that the market was already betting on price declines. When macro shocks hit simultaneously, the accumulated short positions in a negative funding environment create an asymmetric leverage effect—once prices break key support levels, prior short profits turn into stop-loss pressure, further accelerating the decline. In the past 24 hours, total liquidations reached about $700 million, with over 96% coming from long positions. This indicates that the main driver of this correction was not longs closing voluntarily, but forced liquidations triggered by macro shocks—with the bearish structure acting as an amplifier.
How Capital Flows in the Fixed Income Market Affect Crypto Assets
The surge in Treasury yields is prompting a massive reallocation of capital within the fixed income market. With the 30-year yield breaking above 5%, the risk-free annualized return on Treasuries is at a two-decade high. For institutional investors, this makes increasing allocation to fixed income assets in their portfolios more compelling—risk-adjusted returns now outpace any period in recent years. In terms of capital flows, rising Treasury yields are systematically draining capital from all risk assets. Without net inflows from ETFs as a buffer, Bitcoin is left more vulnerable to macro pressures. On May 1, US spot Bitcoin ETFs saw net inflows of about $630 million, but this trend is hard to sustain in an environment of persistently rising Treasury yields. Over a longer cycle, if outflows from the fixed income market become large enough, they could eventually provide incremental capital for the crypto market once macro pressures ease—but only if the macro pricing logic itself reverses.
Looking Ahead: Three Key Macro Variables to Watch
The current phase of overlapping shocks is still a period of pressure release, making it difficult for the market to reach a consensus on direction in the short term. Three variables warrant close monitoring. First, the navigability of the Strait of Hormuz is the core driver of oil price trends. If passage resumes, a sharp pullback in oil prices could quickly cool inflation expectations and trigger a reversal in Treasury yields. However, RBC’s deep skepticism about a "June reopening" suggests this path is far from certain. Second, forward guidance from the Fed’s mid-June FOMC meeting will be a key inflection point for market expectations. Whether the meeting signals a status quo or hints at future policy adjustments, the market will need new information to reprice the rate path. Third, technical structures within 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 subside.
Summary
Bitcoin’s drop below $77,000 and its five-day losing streak fundamentally reflect the concentrated impact of three macro shocks—Middle East tensions driving up oil prices, US Treasury yields breaking 5%, and the collapse of rate cut expectations—on crypto asset valuations. Surging oil prices have fueled higher inflation expectations, broad Treasury sell-offs have pushed up risk-free rates, and the collapse of rate cut expectations has severed the easy liquidity narrative that previously supported risk asset valuations. The combination of these three shocks and the bearish structure in the derivatives market forms the complete logic chain behind this downturn. The market is now undergoing a systemic shift in macro pricing frameworks, with key variables still centered around geopolitical developments and the Fed’s policy path.
FAQ
Q: What is the main reason for Bitcoin dropping below $77,000?
The primary cause is the convergence of three macro shocks: ongoing Middle East conflict pushing oil prices above $102, rising inflation expectations driving the 30-year US Treasury yield above 5%, and the near-total collapse of expectations for a Fed rate cut in 2026. Together, these factors have raised the opportunity cost of holding crypto assets, triggering a systemic flight from risk assets.
Q: What does the US Treasury yield breaking 5% mean for Bitcoin?
A Treasury yield above 5% means the risk-free rate is at a two-decade high. For institutional investors, the risk-free annualized return from Treasuries now exceeds the expected returns of many risk assets, accelerating capital rotation from high-risk exposures like Bitcoin into the fixed income market. As a non-yielding asset, Bitcoin faces higher holding costs in a rising rate environment.
Q: Is there a direct link between oil prices and the Bitcoin price?
There is no direct pricing link, but there is an indirect connection via inflation expectations. Surging oil prices fuel inflation expectations, which in turn affect the Fed’s monetary policy path. Changes in monetary policy then have systemic effects on the valuation of risk assets like Bitcoin. This forms a three-stage transmission: "macro factor → monetary policy → risk assets."
Q: What is the long-term impact of the collapse of rate cut expectations on the crypto market?
The collapse of rate cut expectations means the previously supportive "easy liquidity narrative" for crypto asset valuations is being replaced by a prolonged tightening regime. The market will have to reassess the fair value range for crypto assets in a high-rate environment. In the long run, if inflation is effectively controlled and the Fed signals a policy shift, crypto assets may regain room for valuation recovery.
Q: What key indicators should be monitored in the current market environment?
Focus on three areas: first, the navigability of the Strait of Hormuz and oil price trends, as these are the main drivers of inflation expectations; second, the direction of 10-year and 30-year US Treasury yields and forward guidance from the Fed’s FOMC meetings; third, the recovery of funding rates and ETF net inflow data within the crypto market, as these reflect whether the microstructural pressures in the market are easing.
