Almost all asset prices are affected by the monetary and fiscal policies of the Federal Reserve, and BTC is no exception. People in the crypto market need to always pay attention to various data of the US economy, the attitude of Fed officials, 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 more and more apparent. This article will mainly review the trend of BTC prices at different stages based on the following figure.
(1) From the last rate hike of the Federal Reserve to the beginning of rate cuts
Time: 2018/12 to 2019/7
BTC price performance: first sideways and then rising, from about $3,500 to $12,000
The main rise started in 2019/4 (close to the time when the balance sheet reduction slowed down in 2019/5). It can be considered that the market traded the interest rate cut expectations 3 months in advance.
The historical period corresponds to the current market stage. It has been about 6 months since the last rate hike by the Federal Reserve (July 2023). Similarly, the price of BTC experienced a period of major uptrend 3 months after the rate hike stopped (October 2023). In the past six months, the price of BTC has been greatly affected by ETF expectations. Despite this, its timing and form are still consistent with the laws of past cycles.
(2) The Federal Reserve began to cut interest rates before the epidemic
Time: July 2019 to March 2020
BTC price performance: first fall and then rise
After the rate cuts began, the price fell from 10,000 to 7,000, a drop of 30%. The end of the balance sheet reduction in September 2019 did not have a positive impact. From December 2019 to February 2020, the price rebounded to 10,000. This is the stage of the market in the next 24 years. Historically, after the rate cuts were implemented and the balance sheet reduction ended, BTC fell first and then rose. The high and low positions of the stage can be determined by the NUPL angle.
(3) The easing phase under the influence of the epidemic
In March 2020, affected by the COVID-19 epidemic, the Federal Reserve quickly cut interest rates and launched large-scale QE, while Bitcoin halved in May. This led to a sharp rise in the market after a brief decline, with BTC rising from $5,000 to $65,000.
The top of the Bitcoin market occurred in November 2021, just four months after the Fed ended its easing policy (the first rate hike in March 2022). This shows that the market traded the expectation of rate hikes four months in advance, which is similar to the time difference of the previous rate cut expectations.
It is expected that future bull markets may not benefit from aggressive monetary policies and the rate or magnitude of increases like this time, but the overall trend remains.
(4) Tightening resumes, and the Fed begins raising interest rates until the last rate hike
Time: interest rate hikes started in March 2022 to the last rate hike in July 2023; balance sheet reduction started in June 2022 to the present
BTC price performance: It fell from a low of about 46,000 to 16,000, and began to rebound in early 2023 after falling for about 9 months
At the beginning of 2023, BTC and the Nasdaq index rose simultaneously, which may be related to the market's expectation that the US Treasury bond interest rate will peak and the Fed's rate hike will slow down. The market expects the Fed to cut interest rates this year, but there is a high probability that it will not cut interest rates in March. It is expected that the interest rate cut in 2024 may occur in March or May, when the market may have a wave of correction. Spot ETFs have a greater disturbance to the market, and the selling pressure of GBTC is the dominant factor affecting BTC prices in the near future. The BTC halving time is advanced, which may partially smooth out the possible decline after the interest rate cut.
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