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 monetary policy cycle of the Federal Reserve to observe the changes in BTC prices. This article is sourced from LD Capital’s column article “BTC Price Changes from the Perspective of the Federal Reserve’s Monetary Policy Cycle,” compiled, translated, and written by BlockBeats.
Table of Contents:
The Federal Reserve’s final interest rate hike before starting the rate cut
The Federal Reserve’s rate cut until before the disruption caused by the pandemic
Loose phase under the influence of the pandemic
Restarting tightening, the Federal Reserve’s interest rate hike until the final one
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 data on the US economy, the attitudes of Federal Reserve officials, and the direction of monetary policy.
With the approval of the BTC spot ETF, the impact of the US dollar tide on the crypto market will become more evident. This article will mainly review the trend of BTC prices at different stages as shown in the chart.
Time: December 2018 to July 2019
BTC price performance: Initially flat and then rising, from around $3,500 to $12,000
Start of the main upward trend: April 2019 (close to the time of slowing down the reduction table in May 2019), indicating that the market traded the rate cut expectation three months in advance.
This historical period corresponds to the current stage of the market. It has been about 6 months since the last interest rate hike by the Federal Reserve (July 2023), and similar to the past, BTC prices also experienced a significant upward trend in October 2023 (3 months after the end of rate hikes).
In the past six months, BTC prices have been greatly influenced by the ETF expectations but still coincidentally follow the regularity of a previous cycle in terms of time and form.
Time: July 2019 to March 2020
BTC price performance: Initially falling and then rising
Prices fell after the start of rate cuts, from around $10,000 to $7,000 in December (the reduction table ending in September 2019 did not have a significant positive impact). Prices rebounded to $10,000 from December 2019 to February 2020.
This stage is the stage that the market will enter in 24 years. Historically, BTC performance after the completion of rate cuts and the reduction table has been generally characterized by a decline followed by an upward trend.
From March 2020, 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 experienced a downturn and then entered a major upward wave, with BTC rising from around $5,000 to $65,000.
The peak 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 timing of trading rate cuts in the past.
Without any black swan events, it is unlikely that this round of bull market will see such radical monetary policies and rate of increase in speed or magnitude, but the direction remains the same.
Time: From March 2022 to the last interest rate hike in July 2023; From June 2022 to the present reduction table
BTC price performance: Lowest point around $46,000, then fell to $16,000, and started to rebound in early 2023 after about 9 months of decline.
The upward trend of BTC that started in early 2023, synchronizing with the Nasdaq index, may be related to market expectations of a temporary peak in US bond interest rates and a slowdown in the rate of Federal Reserve interest rate hikes.
Overall, the impact of rate cuts on the BTC market is relatively greater compared to the reduction table. So when will the rate cuts start this year?
Federal Reserve Chairman Powell sent a “dovish” signal after the December FOMC meeting, leading to an increase in market expectations of rate cuts. The latest US data is relatively strong, with December CPI growing by 3.4% YoY (previous value 3.1%), and core CPI growing by 3.9% YoY (previous value 4.0%), both higher than expected. At the same time, the labor market is still tight, and the market currently expects a 52.88% probability of no rate cuts in March.
For the projected rate cuts in 2024, it is either in March or May. Looking at it cautiously, the market may experience a pullback at that time. Of course, the approval of the spot ETF and the selling pressure of GBTC are the main factors affecting BTC prices in the near term.
At the same time, the time for BTC halving is earlier than the previous cycle (the previous halving occurred 10 months after the start of rate cuts). This halving happens to be in between the two expected starting points of rate cuts in the market. Although the upward trend after the halving usually lags behind its actual occurrence, it can still partially offset the potential decline after rate cuts from a time perspective.
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