Since 2022, when the Federal Reserve (Fed) began aggressively raising interest rates to combat high inflation, digital assets have mirrored the volatility of traditional financial markets. Analysts believe this correlation will persist in the near future and may become the new norm.

The Impact of Interest Rates on the Market

Every meeting of the Federal Open Market Committee (FOMC) significantly affects cryptocurrency prices. In 2022, when rates rose from nearly zero to 4.50% by December, both cryptocurrency and stock markets experienced a significant downturn, with inflation peaking at 9.1%.

According to Santiment, traders often act in anticipation, leading to increased volatility in the days leading up to FOMC announcements. The platform's analysis showed that Bitcoin's price often reacts sharply to rate decisions and macroeconomic sentiment. For example, in March 2022, after the first rate hike since 2018, BTC's price fell by 5% within a week. In June, the drop was 18% following a 75 basis point (b.p.) increase. However, in September, the crypto market temporarily rose by 6% after another 75 b.p. hike, driven by speculative trading.

In March 2023, Bitcoin's reaction was different: the cryptocurrency rose by 12% over two weeks as investors anticipated a slowdown in rate hikes. In December of the same year, a 25 b.p. rate cut led to a 15% increase in BTC's price, as the market viewed it as the beginning of a policy easing.

However, in 2024, Bitcoin fell by 8% after the second FOMC meeting, where rates were kept at 5.25%-5.50%. At the same time, a rate cut in September caused a 10% price increase over 10 days.

The recent Fed decision to maintain rates at 4.25%-4.50% resulted in minor fluctuations for BTC, which dipped below $84,000 before stabilizing. Experts attribute this stability to the fact that the Fed's decision was widely anticipated

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Data also showed increased activity among large players (whales), who accumulated over 200,000 BTC in the month leading up to the announcement. Traders also expect that potential rate cuts in the second half of 2025 could revive the cryptocurrency market.

In conclusion, despite some analysts' opinions, the sensitivity of the cryptocurrency market to interest rate changes suggests a long-term correlation with traditional finance. While some believe cryptocurrencies may eventually decouple from macroeconomic trends, investors continue to actively respond to traditional monetary policy for now.

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