Bitcoin’s latest drawdown is beginning to resemble conditions seen before the Federal Reserve’s first rate hike in March 2022, raising the possibility of a short-term rebound before another period of weakness.
The Fed increased interest rates by 25 basis points on Wednesday, lifting its benchmark target range to 3.75%-4.00%. The move marked the first rate increase in more than three years, while markets are now pricing in another 75 basis points of tightening over the coming six months.
Historical precedent indicates that the latest increase may not be the Fed’s final move. Since 1994, the central bank has ended a tightening cycle after just one hike only once. Single-hike cycles have likewise been unusual among the 12 tightening campaigns recorded since 1955.
Bitcoin has a relatively short history for making such comparisons. BTC experienced the tightening cycle that started in 2015, but the cryptocurrency market was smaller, less liquid and less developed at the time. As a result, the 2022 tightening cycle offers a more relevant comparison because Bitcoin was trading in a more established market environment.
The similarities are already notable. Bitcoin climbed to about $69,000 in November 2021 before losing roughly 40% of its value by the time the Fed raised rates for the first time in March 2022. The cryptocurrency is currently around 40% below its October peak of $126,000.
Bitcoin initially responded positively to the March 2022 hike, rising approximately 18% over the next 12 days. That rally was later followed by a decline of roughly 50%. The pattern suggests that a relief bounce does not necessarily rule out a longer downturn. However, the comparison is based on only one mature-market cycle, while the 2022 decline also occurred alongside falling stock, bond and metal prices and severe stress across the crypto industry.
Inflation remains central to the Fed’s decision to tighten policy. Annual headline inflation has stayed above 2% for more than five years, although core inflation, which excludes food and energy, has declined to 2.4%, its lowest level in five years. The decline indicates that some progress has been made in reducing underlying price pressures.
That improvement is now being challenged by a fresh energy shock. Escalating geopolitical tensions in the Middle East have pushed WTI and Brent crude above $100 per barrel, creating renewed inflation risks while potentially weakening economic growth. Global bond yields have also increased, with the U.S. 10-year Treasury yield reaching 5%, adding pressure to financial conditions and risk assets.
With Bitcoin’s bear market nearing its one-year point, the return of monetary tightening raises a key question: could another rate-hiking cycle extend the cryptocurrency’s downturn?
