Bitcoin plunges back into the 2022 scenario after the Fed’s new turn

The crypto market is retracing a scenario recently observed during the previous monetary tightening cycle. After the Federal Reserve’s first rate hike in more than three years, bitcoin is evolving in a configuration reminiscent of 2022. At that time, its decline preceded the March decision, followed by a temporary rebound and then a new drop. However, the market’s maturity limits this comparison. The coming weeks will allow us to observe whether this historical parallel maintains a clear scope.

In brief

• The Fed raised its rates by 25 basis points, bringing its range to 3.75%-4.00%.
• The current decline of bitcoin shares several similarities with the period preceding the March 2022 hike.
• After the 2022 hike, bitcoin rebounded by 18% before losing about 50%.
• The energy shock and rising bond yields now complicate financial conditions.

A rate hike that revives the parallel with 2022

On Wednesday, the US Federal Reserve (Fed) raised its rates by 25 basis points. Its reference range now reaches 3.75% to 4.00%. This decision marks the first hike in three years. Markets now anticipate an additional 75 basis points over the next six months.

Historically, an isolated move remains rare during tightening cycles. Since 1994, the Fed has made only a single rate hike. Since 1955, across twelve tightening periods, single hikes remain uncommon.

For bitcoin, the comparison with 2022 is therefore particularly relevant. The current market has little historical perspective. The cycle that started in 2015 is another reference, but lower liquidity and a less developed market limit the comparison.

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The 2022 precedent shows a rebound before the decline

In November 2021, the bitcoin price had reached around $69,000. By the first rate hike in March 2022, it had already lost nearly 40% since that peak. Today, it is also about 40% below its October peak, set at $126,000.

The movement observed after the March 2022 decision provides another point of comparison. Bitcoin rose about 18% over the twelve days that followed. It then dropped about 50%, leading to a prolonged decline phase.

This sequence therefore feeds the hypothesis of a rebound before a new deterioration. It does not constitute a certain path. In 2022, the decline was accompanied by losses in stocks, bonds, and metals. The crypto sector was also experiencing significant turbulence.

Inflation and energy complicate the next steps

The Fed justifies its rate hike by persistent inflation. Overall inflation has remained above 2% for more than five years. Yet, core inflation, excluding food and energy, has slowed to 2.4%. This level represents its lowest point in five years.

For bitcoin, this improvement now clashes with a new energy shock. Geopolitical tensions in the Middle East have pushed WTI and Brent to surpass $100 a barrel by a wide margin. This development threatens to reignite inflation for bitcoin while slowing growth.

Meanwhile, global bond yields have increased. The yield on the ten-year US Treasury note has reached 5%. This rise increases pressure on financial conditions and risky assets. Bitcoin thus enters a period where macroeconomic data will remain central.

In the short term, the 2022 precedent therefore provides a comparison framework, without guaranteeing an identical repetition. The market’s next behavior will notably depend on the trajectory of rates, inflation, and financial conditions. For investors, the evolution of BTC will primarily help measure whether the historical parallel continues or stops.