Are US Interest Rates Really Important for Cryptocurrency?
The Federal Reserve's interest rate decisions have now become a major testing ground for the cryptocurrency market. Since 2022, in an effort to combat soaring inflation, the Federal Reserve has continuously raised interest rates, causing digital assets to ride the roller coaster along with traditional markets.
It seems that this close connection between the crypto market and Federal Reserve rates is not just a temporary phenomenon; it appears to have become the new norm.
Every time the Federal Reserve holds a meeting to discuss interest rates, the market experiences significant movement. For instance, in 2022, interest rates rose from almost zero all the way to 4.5%, and as a result, both cryptocurrencies and the stock market suffered considerable declines, with inflation reaching as high as 9.1%.
Many traders have learned to jump the gun, reacting in advance, which leads to particularly large market fluctuations on the day of the Federal Reserve meeting. Data shows that Bitcoin's price often moves quickly in response to the Federal Reserve's decisions and the overall economic situation.
By March 2023, the situation changed; Bitcoin rose by 12% as investors felt that the Federal Reserve would slow down its rate hikes. In December, when the Federal Reserve only raised rates by 25 basis points, Bitcoin surged again by 15%, signaling a relaxation.
However, after the Federal Reserve meeting in 2024, Bitcoin fell by 8%. But after the rate cut in September, Bitcoin rose by 10% within ten days.
Market sentiment and macroeconomic factors are increasingly influencing the crypto market. Recently, the Federal Reserve decided to keep interest rates unchanged; although Bitcoin only showed slight fluctuations, it has already dropped below $84,000. Experts say this is because everyone had already anticipated this decision from the Federal Reserve, resulting in minimal reaction.
Moreover, large wallets have been quietly active, starting to buy Bitcoin in large amounts a month in advance. Traders are also looking forward to a rate cut in the second half of 2025, believing it will be a good opportunity for the crypto market.
Overall, although some analysts feel that the crypto market should have detached from macroeconomic influences, the reality is harsh; investors remain very sensitive to traditional monetary policies. It seems that for the crypto market to be completely independent from traditional finance, it will take quite a while.
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