Bitcoin faces 2022 parallels as Federal Reserve resumes rate increases
Bitcoin’s drawdown mirrors its position before the Fed’s first hike in March 2022, raising questions over whether a relief rally could precede further losses.
The Federal Reserve raised interest rates by 25 basis points on Wednesday, taking its benchmark range to 3.75% to 4.00% in its first increase in more than three years. Markets are pricing in a further 75 basis points of tightening over the next six months.
History suggests a single hike could be unlikely. Since 1994, the Fed has gone “one and done” just once, with single increases also a rarity across the 12 tightening cycles since 1955.
Synergies with 2022 have already taken place. Bitcoin peaked around $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.
The reason the Fed hiked rates on Wednesday was inflation. Annual headline inflation has remained above 2% for over five years, although core inflation, which excludes food and energy, eased to 2.4%, its lowest level in five years. So progress is being made.