Bitcoin is showing several similarities to the period surrounding the Federal Reserve’s first rate hike in March 2022, raising the possibility that a temporary rebound could emerge before the broader decline resumes.
The Fed lifted interest rates by 25 basis points on Wednesday, moving its benchmark target range to 3.75%-4.00%. The increase was the central bank’s first in more than three years. Markets are now anticipating another 75 basis points of tightening during the next six months.
Past tightening cycles suggest that Wednesday’s move may not be an isolated increase. Since 1994, the Fed has ended a hiking campaign after only one increase just once. A single rate hike has also been unusual across the 12 tightening cycles recorded since 1955.
Bitcoin’s relatively short history limits the number of useful comparisons. BTC experienced the tightening cycle that began in 2015, but its market was significantly less mature and liquid at that time. The 2022 cycle provides a closer reference because Bitcoin had developed a deeper and more established market structure.
The parallels with that period are already visible. Bitcoin reached approximately $69,000 in November 2021 and had declined about 40% by the time the Fed delivered its first hike in March 2022. Bitcoin is now roughly 40% below its October high of $126,000.
Following the March 2022 rate increase, Bitcoin climbed about 18% over the next 12 days before eventually dropping around 50%. That sequence suggests a short-lived relief rally could potentially be followed by a more extended decline. Still, the evidence is limited because only one comparable mature-market cycle is available. Bitcoin’s 2022 downturn also unfolded alongside weakness in stocks, bonds and metals, as well as major stress throughout the crypto sector.
The Fed’s latest rate increase was driven by inflation concerns. Headline inflation has remained above 2% annually for more than five years, although core inflation, which excludes food and energy, has fallen to 2.4%, its lowest level in five years. That decline points to some improvement in underlying inflation pressures.
However, a new energy shock is complicating that progress. Geopolitical tensions in the Middle East have pushed WTI and Brent crude above $100 a barrel, increasing the risk of renewed inflation while potentially weighing on economic growth. Higher global bond yields are adding to the pressure, with the U.S. 10-year Treasury yield reaching 5% and tightening financial conditions for risk assets.
As Bitcoin’s bear market approaches its one-year mark, the return of higher interest rates raises the question of whether renewed monetary tightening could keep the cryptocurrency under pressure for longer.
