The impact of the Federal Reserve’s (Fed) monetary and fiscal policies always affects various trading markets, and BTC is no exception. This article summarizes the changes in BTC prices by observing the monetary policy cycle of the Federal Reserve. This article is sourced from LD Capital’s column article titled “BTC Price Changes from the Perspective of the Federal Reserve’s Monetary Policy Cycle” and is organized, translated, and written by BlockBeats.
Table of Contents:
The Fed’s last interest rate hike to the beginning of rate cuts
The Fed’s rate cuts until before the pandemic disruption
Loose phase under the influence of the pandemic
Restarting tightening, the Fed begins interest rate hikes until the last hike
Almost all asset prices are affected by the Federal Reserve’s monetary and fiscal policies, and BTC is naturally no exception. Being in the crypto market requires constant attention to various economic data, Fed officials’ speeches, and the direction of monetary policy in the United States.
With the approval of BTC spot ETF, the influence of the US dollar tide on the crypto market will become more apparent. This article will mainly focus on the chart below to review the trend of BTC prices in different stages.
Time: December 2018 to July 2019
BTC price performance: Initially sideways, then rising from around $3,500 to $12,000
Start of the main uptrend: April 2019 (close to the time when the shrinking table slowed down in May 2019), indicating the market’s anticipation of a rate cut three months in advance.
This historical period corresponds to the current stage of the market. Approximately 6 months have passed since the last interest rate hike by the Federal Reserve (July 2023). Similar to the past, BTC prices also experienced a significant uptrend in October 2023 (3 months after the end of rate hikes).
In the past six months, BTC prices have been influenced to a large extent by the anticipation of ETFs, but they still coincidentally conform to the pattern of a previous cycle in terms of time and form.
Time: July 2019 to March 2020
BTC price performance: Initial decline, then rise
Price fell after the start of rate cuts, from around $10,000 to $7,000 in December, a 30% decline (the shrinkage table ending in September 2019 did not have a significant positive impact). From December 2019 to February 2020, it rebounded to $10,000.
This stage is the stage that the market will enter in 24 years. Historically, after the last rate cut and the end of the shrinking table, BTC’s performance was generally a decline followed by a rise.
From March 2020 onwards, affected by the Covid pandemic, the Federal Reserve quickly cut interest rates and initiated large-scale QE. Combined with the halving in May 2020, the market briefly declined and then entered a major uptrend, with BTC rising from around $5,000 to $65,000.
The top of the BTC market appeared in November 2021, 4 months before the end of the loose phase (first interest rate hike in March 2022). It can be considered that the market traded the expectation of rate hikes 4 months in advance, which is closer to the previous time of trading rate cuts in advance.
In the absence of black swan events, it is unlikely that this round of bull market will see such radical monetary policies and rate of increase or magnitude again, but the direction remains the same.
Time: Interest rate hikes from March 2022 to the last rate hike in July 2023; Shrinking table from June 2022 to the present
BTC price performance: It dropped from a low of around $46,000 to $16,000, and started to rebound in early 2023, about 9 months after the decline.
The uptrend in BTC that started in early 2023 and synchronized with the Nasdaq index may be related to the market’s expectation of a temporary peak in US bond interest rates and a slowdown in the magnitude of Fed rate hikes.
Overall, the impact of rate cuts on the BTC market is relatively greater than that of the shrinking table. So, when will rate cuts begin this year?
Fed Chairman Powell sent a “dovish” signal after the December FOMC meeting, leading to an increase in market expectations of rate cuts. The latest data from the United States is relatively strong, with the December CPI increasing by 3.4% year-on-year (previous value 3.1%), and the core CPI increasing by 3.9% year-on-year (previous value 4.0%), both higher than expected. At the same time, the labor market remains tight, and the current market expects a 52.88% probability of no rate cuts in March.
For the expected rate cuts in 2024, it will either be in March or May. Looking at the situation cautiously, the market may experience a pullback at that time. Of course, the approval of spot ETFs is a significant disturbance to the market, and the landing of positive news and the selling pressure from GBTC are the main factors affecting BTC prices recently.
At the same time, the timing of BTC halving is earlier than the previous cycle (the previous halving occurred 10 months after the start of rate cuts). This time, the halving happened to be sandwiched between the two starting points of expected rate cuts in the market. Although the price increase after the halving usually lags behind its actual occurrence, it can still partially offset the potential decline after rate cuts.
Related Reports
Bitcoin Falls Below $40,000: Perpetrator? Insider: FTX Selling Nearly $1 Billion of Grayscale GBTC
Bull Market Shows True Strength: What Are Developers in the Crypto Industry Busy With?
Will Bitcoin Continue to Fall? Grayscale GBTC Liquidation Has Potential Selling Pressure of $25 Billion.