Almost all asset prices are affected by the monetary and fiscal policies of the Federal Reserve, and BTC is naturally no exception. Being in the crypto market requires you to always pay attention to various data on the U.S. economy, the attitude of Federal Reserve officials’ speeches, the direction of monetary policy, etc. With the passage of the BTC spot ETF, the impact of the US dollar tide on the crypto market will become increasingly apparent. This article will mainly focus on the chart below to review the BTC price trend at different stages.
(1) The Federal Reserve raised interest rates for the last time and then started to cut interest rates.
Time: 2018/12 to 2019/7
BTC price performance: first sideways and then rising, rising from about 3,500 to 12,000 US dollars
The start time of the main rise is: 2019/4 (similar to the time of 2019/5 when the balance sheet reduction is slowed down). It can be considered that the market is trading on interest rate cut expectations 3 months in advance.
This historical period corresponds to the current market stage. It has been about 6 months since the last time the Federal Reserve raised interest rates (2023/7). Similar to the past, the price of BTC was also in October 2023 (after the interest rate hike stopped). 3 months) ushered in a period of rising market conditions. In the past six months, the price of BTC has been greatly affected by ETF expectations, but it still coincides with the rules of the past cycle in terms of time and shape.
(2) The Federal Reserve begins to cut interest rates until before the epidemic is disrupted
Time: 2019/7 to 2020/3
BTC price performance: first fell and then rose
After the interest rate cut began, the price fell, from about 10,000 to 7,000 in December, a drop of 30% (the end of the balance sheet reduction in 2019/9 did not have a significant positive impact during this period), and rebounded to 10,000 from December 2019 to February 2020.
This stage is the stage that the market will enter in 24 years. In history, after the implementation of an interest rate cut and the end of balance sheet shrinkage, the overall performance of BTC fell first and then rose.
The above two stages combined with the angle of NUPL can well determine the stage's high and low positions.
(3) Relaxation stage under the influence of the epidemic
Later in March 2020, affected by the covid epidemic, the Federal Reserve quickly cut interest rates and launched large-scale QE, coupled with the 2020/5 halving. After a brief decline, the market ushered in a main rise, and BTC rose roughly from 5,000 to 65,000.
The peak of the BTC market occurred in 2021/11, 4 months before the end of easing (the first interest rate hike in 2022/3). It can be considered that the market traded interest rate hike expectations 4 months in advance, which is close to the time difference between the previous trading of interest rate cuts in advance.
In the absence of a black swan event, it may be difficult for this bull market to reproduce such radical monetary policies and rising rates or magnitudes, but the direction remains the same.
(4) Tightening resumes and the Fed begins to raise interest rates to the last rate hike
Time: Starting from 2022/3, interest rates will be raised to the last rate increase in 2023/7; Starting from 2022/6, the balance sheet reduction will be to the present
BTC price performance: It dropped from about 46,000 to as low as 16,000. After falling for about 9 months, it began to rebound in early 2023.
The simultaneous rise of BTC and the Nasdaq index starting in early 2023 may be related to the market's expectation that U.S. bond interest rates will peak in stages and the Fed's interest rate hikes will slow down.
Overall, it seems that interest rate cuts will have a greater impact on the BTC market than balance sheet shrinkage. So when will the interest rate cuts start this year?
Federal Reserve Chairman Jerome Powell sent a "dovish" signal after the December FOMC meeting, which led to increased expectations for the Federal Reserve to cut interest rates. The latest data from the United States is relatively strong. The U.S. CPI increased by 3.4% year-on-year in December (previous value: 3.1%), and the core CPI increased by 3.9% year-on-year (previous value: 4.0%), both higher than expected. At the same time, the labor market is still tight, and the current market expects The probability of no interest rate cut in March is 52.88%.
As for the expected interest rate cut in 2024, it will either be in March or May. If we look at it carefully, the market may have a correction by then. Of course, spot ETFs are a major disturbance to the market. The implementation of favorable conditions and the selling pressure of GBTC are the dominant factors affecting the price of BTC in the near future. At the same time, the BTC halving time is also much earlier than the previous cycle (the previous halving occurred 10 months after the interest rate cut began). This halving is sandwiched between the two starting points for interest rate cuts expected by the market. Although the rise after the halving benefit usually lags behind the actual date of its occurrence, the timing can still partially smooth out the possible decline after the interest rate cut.
