The Federal Reserve raised interest rates by 25 basis points on Wednesday, lifting its benchmark range to 3.75% to 4.00% in its first increase in more than three years. Markets are pricing in an additional 75 basis points of tightening over the next six months.
Bitcoin's recent price action has drawn comparisons to 2022, when the Fed began its tightening cycle. Bitcoin peaked at approximately $69,000 in November 2021 and was down roughly 40% when the Fed first raised rates in March 2022. Today, it sits around 40% below its October high of $126,000—a similar starting position.
Following the initial March 2022 hike, bitcoin rallied approximately 18% over the following 12 days before subsequently falling around 50%. That raises the possibility that another relief rally could precede a prolonged downturn, though the 2022 cycle offers limited evidence for prediction. Bitcoin's 2022 decline coincided with broad losses across equities, bonds, and metals, alongside turmoil within the crypto industry.
The Fed cited inflation as the reason for Wednesday's rate increase. Annual headline inflation has remained above 2% for over five years, though core inflation, which excludes food and energy, has eased to 2.4%, its lowest level in five years. However, rising oil prices now pose a challenge to inflation progress. Geopolitical tensions in the Middle East have pushed WTI and Brent crude well above $100 a barrel, threatening to reignite inflation and squeeze growth. Global bond yields have also climbed, with the U.S. 10-year Treasury yield reaching 5%, adding pressure to financial conditions and risk assets.
Historically, the Fed rarely limits itself to a single rate hike. Since 1994, the central bank has gone "one and done" just once, with single increases a rarity across the 12 tightening cycles since 1955. Bitcoin's bear market is approaching the one-year mark as a new rate-hiking cycle takes shape.
