The impact of the US Federal Reserve (Fed) on monetary and fiscal policies always affects various trading markets, and BTC is no exception. This article summarizes the changes in BTC price by observing the monetary policy cycle of the Fed. This article is sourced from LD Capital’s column article “BTC Price Changes from the Perspective of the Fed’s Monetary Policy Cycle,” compiled, translated, and written by BlockBeats.
(Table of Contents:
Last Fed rate hike to the start of rate cuts
Rate cuts by the Fed to pre-pandemic disruption
Loose phase under the influence of the pandemic
Resumption of tightening, Fed rate hikes to the last rate hike)
Almost all asset prices are affected by the Fed’s monetary and fiscal policies, and BTC is naturally no exception. Being in the crypto market requires constant attention to various economic data, speeches by Fed officials, and the direction of monetary policy in the United States.
With the approval of the BTC spot ETF, the impact of the US dollar on the crypto market will become more evident. This article will mainly focus on the trend of BTC price in different stages as shown in the following figure.
[Image]
Time: December 2018 to July 2019
BTC Price Performance: Initially flat, then rose from around $3,500 to $12,000
Start of the main uptrend: April 2019 (close to the time of tapering in May 2019), indicating the market’s anticipation of rate cuts three months in advance.
This historical period corresponds to the current stage of the market. It has been approximately six months since the last Fed rate hike (July 2023), and similar to the past, BTC price also experienced a major uptrend in October 2023 (three months after the end of rate hikes).
In the past six months, BTC price has been greatly influenced by the expectation of ETF, but it still coincides with the regularity of the previous cycle in terms of timing and form.
Time: July 2019 to March 2020
BTC Price Performance: Initially fell then rose
Price decline after rate cuts, from around $10,000 to $7,000 in December (the end of tapering in September 2019 did not have a significant positive impact), followed by a rebound to $10,000 from December 2019 to February 2020.
This stage corresponds to the stage the market will enter in 24 years. Historically, after the last rate cut and the end of tapering, BTC’s performance was generally a decline followed by an uptrend.
From the perspective of the NUPL indicator, the combination of these two stages can well determine the high and low positions of each stage.
In March 2020, due to the impact of the Covid pandemic, the Fed rapidly cut interest rates and initiated massive QE. Coupled with the halving in May 2020, the market briefly declined and then experienced a major uptrend, with BTC rising from around $5,000 to $65,000.
The peak of the BTC market occurred in November 2021, four months before the end of the loose phase (the first rate hike in March 2022), which can be considered as the market trading rate hike expectations four months in advance, similar to the previous anticipation of rate cuts.
Without any black swan events, it is unlikely that this round of bull market will see such radical monetary policies and rate of increase or magnitude, but the direction remains the same.
Time: Rate hikes from March 2022 to the last rate hike in July 2023; Tapering from June 2022 to the present
BTC Price Performance: Fell from a low of $46,000 to $16,000, then started to rebound in early 2023 after a 9-month decline.
The uptrend of BTC that started synchronously with the NASDAQ index in early 2023 may be related to the market’s expectation of a temporary peak in US bond interest rates and a slowdown in the rate of Fed rate hikes.
Overall, the impact of rate cuts on the BTC market is relatively greater than that of tapering. So when will rate cuts start this year?
Fed Chairman Powell sent a “dovish” signal after the December FOMC meeting, leading to an increase in expectations for rate cuts by the Fed. The latest US data is relatively strong, with a year-on-year increase of 3.4% in December CPI (previously 3.1%), and a year-on-year increase of 3.9% in core CPI (previously 4.0%), both higher than expected. At the same time, the labor market remains tight, and the market currently expects a 52.88% probability of no rate cuts in March.
For the projected rate cuts in 2024, it will either be in March or May. From a cautious perspective, the market may experience a pullback at that time. Of course, the approval of the spot ETF is a significant disturbance to the market, and the landing of positive news and the selling pressure of GBTC are the main factors affecting the BTC price recently.
At the same time, the timing of the BTC halving is much earlier than the previous cycle (the previous halving occurred 10 months after the start of rate cuts). This time, the halving happens to be sandwiched between the two expected rate cut starting points. Although the price increase after the halving usually lags behind the actual date, it can still partially mitigate the possible decline after rate cuts.
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