{"id":37711,"date":"2022-08-18T17:05:00","date_gmt":"2022-08-18T14:05:00","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37711"},"modified":"2025-08-29T20:21:32","modified_gmt":"2025-08-29T17:21:32","slug":"how-the-feds-policy-rate-affects-cryptocurrency-prices","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/how-the-feds-policy-rate-affects-cryptocurrency-prices\/","title":{"rendered":"How the Fed\u2019s policy rate affects cryptocurrency prices"},"content":{"rendered":"<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Key points<\/h2>\n<ul class=\"wp-block-list\">\n<li>The Federal Reserve\u2019s policy rate is the interest rate at which banks make short-term loans to one another. If a bank must transfer or \u201ccash out\u201d funds for a client but lacks sufficient reserves, it borrows from another institution for a brief period at a minimal rate.<\/li>\n<li>The Fed\u2019s policy rate is the main tool of US monetary policy. Changes to it ripple through the financial system and equity markets and affect the pricing of multiple asset classes, including bitcoin and other cryptocurrencies.<\/li>\n<li>History shows an inverse relationship between the Fed\u2019s policy rate and bitcoin\u2019s price: rate cuts tend to boost the market capitalisation of bitcoin and other digital assets, and increases do the opposite.<\/li>\n<\/ul>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">How are the Fed\u2019s policy rate and risk linked? <\/h2>\n<p>Every financial asset carries a certain level of risk. From a macroeconomic perspective, assets are broadly divided into two types:<\/p>\n<ol class=\"wp-block-list\">\n<li>Risk assets are instruments with variable returns that depend on investor behaviour and market conditions. Public equities fall into this category. Bitcoin lacks a settled legal status, but in some market phases behaves like a volatile, high\u2011risk asset whose price movements track stocks.<\/li>\n<li>Low\u2011risk or defensive assets offer modest returns but relatively stable prices. They serve as stores of value during downturns. Examples include some fiat currencies, precious metals (notably gold) and highly rated sovereign and corporate bonds. Rate hikes also raise the yields on US Treasuries, the world\u2019s principal crisis hedge.<\/li>\n<\/ol>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Why does bitcoin\u2019s price move when the Fed raises rates?<\/h2>\n<p>During economic expansions the Fed keeps rates low, encouraging investment and reducing the overall savings rate. Because risk assets promise higher potential returns, they tend to attract more investor interest.<\/p>\n<p>In recessions or crises the Fed raises rates. That pushes economic actors to save more, sell risk assets and seek \u201csafe harbours\u201d such as conservative instruments whose yields are rising.<\/p>\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/frs-btc-fl-1-1024x506.png\" alt=\"How changes in the Fed\u2019s rate affect bitcoin\u2019s price\" class=\"wp-image-178174\" width=\"820\" height=\"405\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/frs-btc-fl-1-1024x506.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/frs-btc-fl-1-300x148.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/frs-btc-fl-1-768x380.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/frs-btc-fl-1-1536x760.png 1536w, https:\/\/forklog.com\/wp-content\/uploads\/frs-btc-fl-1.png 1834w\" sizes=\"auto, (max-width: 820px) 100vw, 820px\" \/><figcaption>The Fed\u2019s rate and bitcoin\u2019s price. Data: TradingView<\/figcaption><\/figure>\n<p>When the Fed hikes, banks lift borrowing costs for households and businesses, making investment dearer. This slows activity across the economy and dampens demand for goods, services and other components of output.<\/p>\n<p>Overtightening or ending a hiking cycle too late can trigger recession not only in the United States but elsewhere, given the dollar\u2019s dominance.<\/p>\n<p>In such conditions investors prefer assets with predictable income, such as government bonds, rather than volatile risk assets, a group that includes bitcoin.<\/p>\n<p>The Fed\u2019s rate is an important, but not decisive, driver of cryptocurrency prices. Investment decisions should not rest on this factor alone.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Who sees bitcoin as risky, and why?<\/h2>\n<p>Some investors view bitcoin as \u201cdigital gold,\u201d a store of value; others focus on its high volatility.<\/p>\n<p>At the start of 2022, Grayscale\u2019s specialists classed bitcoin as a high\u2011risk asset, highlighting a long\u2011term uptrend outpacing gold and the cryptocurrency\u2019s volatility as fertile ground for speculation.<\/p>\n<p>In April, analysts at Arcane Research said the correlation between bitcoin\u2019s price and the Nasdaq Composite, a proxy for America\u2019s tech sector, had peaked. Tech stocks are seen as volatile \u201cgrowth assets\u201d.<\/p>\n<p>In early June 2022, Bloomberg Intelligence commodity strategist Mike McGlone likewise drew parallels between the crypto market\u2019s slump and the \u201cgreat retracement\u201d in high\u2011risk assets during the 2008 and 1987 crises. Although McGlone expects the first cryptocurrency to gain store\u2011of\u2011value status, he currently classifies bitcoin as a risk asset.<\/p>\n<p>According to Kaiko, by June 2022 bitcoin had reached peak correlation with leading stock indices S&amp;P 500 and Nasdaq 100, underscoring its volatile, high\u2011risk character.<\/p>\n<p>The first cryptocurrency does not always move with risk assets. In 2020, VanEck Global\u2019s fund managers recorded a record correlation between bitcoin and gold. In 2021, ARK Investment Management head Cathie Wood said big business was looking at bitcoin as a hedge against dollar inflation. A vivid example is MicroStrategy, which holds part of its capital in the first cryptocurrency. <\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What happens to bitcoin\u2019s price when the Fed eases?<\/h2>\n<p>When the Fed lowers rates, it buys assets in the open market, injecting liquidity. Money becomes more plentiful, credit cheaper and the investment climate improves. This accelerates growth by giving businesses and households access to cheaper borrowing.<\/p>\n<p>Easy policy and abundant cheap money lead investors to relax risk constraints and fund new technologies, R&amp;D, construction, startups, funds and other risky instruments, including cryptocurrencies.<\/p>\n<p>Another tool the Fed can use is quantitative easing. It was first deployed during the 2008 crisis. By expanding its balance sheet\u2014effectively printing money\u2014the Fed began buying in the US market unreliable securities and the bonds of large companies in financial distress.<\/p>\n<p>In doing so the regulator propped up the economy and helped avert mass defaults. Quantitative easing, however, sharply increased the money supply and raised inflation risks.<\/p>\n<p>Soon after, the Bitcoin network went live, positioned as a response to problems in the financial system and official policy.<\/p>\n<p>The Fed turned to quantitative easing again, on a much larger scale, in spring 2020 when the United States went into lockdown during the pandemic.<\/p>\n<p>From March to June 2020 the Fed pumped nearly $3 trillion into the economy. That not only halted the stock\u2011market slide but also unleashed a powerful rally in risk assets. Crypto followed suit.<\/p>\n<p>That cycle, however, ended in a sharp rise in dollar inflation brought on by the Fed\u2019s actions, which weighed on bitcoin\u2019s price.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Will bitcoin remain a risk asset?<\/h2>\n<p>There is no definitive answer. In the past, researchers have repeatedly observed correlation between bitcoin and gold, the traditional defensive asset.<\/p>\n<p>In the <a href=\"https:\/\/panteracapital.com\/blockchain-letter\/the-feds-twin-policy-errors\/\" target=\"_blank\" rel=\"noreferrer noopener\">view <\/a>of Pantera Capital\u2019s founder Dan Morehead, the Fed is excessively manipulating the market by buying ever more distressed assets\u2014already causing strains in US labour markets, Treasuries and mortgage lending. Problems in America\u2019s economy will inevitably spill over to other countries.<\/p>\n<p>He argues that bitcoin\u2019s only problem is its rising correlation with high\u2011risk assets, particularly the S&amp;P 500 during drawdowns. He is confident this is not a permanent state.<\/p>\n<p>Morehead is convinced that, sooner or later, the paths of cryptocurrencies and traditional assets will diverge for good.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Quick answers to common questions<\/h2>\n<h3 class=\"wp-block-heading\">How does a Fed rate hike affect cryptocurrencies?<\/h3>\n<p>Raising rates is meant to \u201ccool\u201d the US economy. That tends to hurt equities. Although cryptocurrencies are a distinct asset class, they correlate closely with stocks, so their prices can fall when the Fed tightens. Correlations may shift towards defensive assets again in future, as they have before.<\/p>\n<h3 class=\"wp-block-heading\">How will a Fed meeting affect bitcoin?<\/h3>\n<p>Until the US economy shows signs of sustained recovery, the Federal Reserve is likely to keep raising rates. At the July 2022 meeting the regulator lifted them by 0.75 percentage points. According to <a href=\"https:\/\/www.cnet.com\/personal-finance\/banking\/will-fed-continue-to-push-interest-rates-up-heres-what-the-latest-inflation-stats-tell-us\/\" target=\"_blank\" rel=\"noreferrer noopener\">analysts<\/a>, the Fed will raise rates for at least the next few meetings.<\/p>\n<h3 class=\"wp-block-heading\">Why are cryptocurrencies falling?<\/h3>\n<p>One key reason prices fell in 2022 was the broader global downturn triggered by the pandemic. Disrupted supply chains lifted prices across whole categories of goods, while large\u2011scale liquidity programmes in developed economies pushed inflation to record levels.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What else to read?<\/h2>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-the-austrian-school-of-economics\">What is the Austrian School of Economics?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-crypto%e2%80%91anarchism\">What is crypto\u2011anarchism?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-venture-capital\">What is venture financing?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-central-bank-digital-currency-cbdc\">What is a central bank digital currency (CBDC)?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-cryptocurrency-etf\">What are cryptocurrency ETFs?<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>How are the Fed\u2019s policy rate and bitcoin\u2019s price linked? How has the first cryptocurrency behaved when rates change? And what does dollar inflation have to do with it? We explain in cards.<\/p>\n","protected":false},"author":1,"featured_media":37712,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"2","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[2113],"tags":[2125,2118,18,1249,26],"class_list":["post-37711","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptorium","tag-101-economic-theory","tag-101-trading-and-investing","tag-bitcoin","tag-federal-reserve-system","tag-usa"],"aioseo_notices":[],"amp_enabled":true,"views":"173","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37711","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=37711"}],"version-history":[{"count":1,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37711\/revisions"}],"predecessor-version":[{"id":37713,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37711\/revisions\/37713"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/37712"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=37711"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=37711"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=37711"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}