Bitcoin Holds Near $77k as Fed Hike Odds Hit 86.5%

Three days ahead of the Federal Reserve's interest rate decision, bitcoin is trading around $77,250. Futures markets assign an 86.5% probability to a quarter-point increase on Wednesday.

Caitlin Long, CEO of Custodia Bank, argues the more significant change lies elsewhere. According to her, it is the Treasury Department, not the Federal Reserve, that now defines the conditions for digital dollars.

Federal Reserve Decision Looms Over Next Three Days

The decision will be announced by Chair Kevin Warsh on September 16, roughly four months after he took office. Prediction markets on Kalshi and Polymarket collectively price the same rate increase at over 80%.

The inflation report released on Friday was largely responsible for the shift. Consumer prices increased 0.4% in August, following a 0.1% rise in July, bringing the annual rate up to 3.4%.

The Federal Open Market Committee already appears divided. In July, it kept rates at 3.50% to 3.75%, but three members dissented, calling for a hike at that time.

Bitcoin has already given back some of its recent gains. On September 4, when BeInCrypto reported BTC nearing $82,000, Fed hike odds stood at 50/50.

Since then, the odds have climbed steadily. Bitcoin now trades several thousand dollars lower and has remained roughly flat over the last 24 hours.

Treasury Previously Shifted These Markets

The question in the headline has a historical precedent. In August, ten-year and thirty-year yields reached twenty-year highs. On August 19, the Treasury responded by doubling its buybacks of longer-dated securities to $4 billion per operation.

Yields fell on that announcement. However, they rebounded within days, erasing the decline.

The buyback program is currently active, from September 9 to November 4. Secretary Scott Bessent could finance it using the Treasury General Account, which holds nearly $1 trillion.

UBS strategists argued this month that the relevant question is not whether the Fed acts, but the environment into which it acts. That environment is being shaped at the long end of the bond market.

Long's View: The Fed Is Losing the Long-Term Battle

Long observes a similar shift in regulatory power. The GENIUS Act, a 2025 law that oversees dollar-pegged stablecoins, comes into effect on January 18, 2027. Treasury and the OCC have released proposed rules. The Fed has yet to do so.

“There’s no question Treasury is taking a lot more power from the Fed,” Caitlin Long, CEO of Custodia Bank, said in an interview.

Treasury has additionally asserted the authority to determine which foreign stablecoins can enter U.S. markets. Long anticipates that tokenized deposits — bank dollars moving on blockchain rails — will push out stablecoins. U.S. banking groups warned about deposit flight when the law was enacted.

Wednesday's decision will answer the rate question. The issues of whether Treasury can maintain the long end and who ultimately sets the digital-dollar rules will extend well into 2027.