The Federal Reserve’s interest rate decisions have become make-or-break moments for crypto markets. Since 2022, when the Fed started aggressively hiking rates to combat runaway inflation, digital assets have mirrored the volatility in traditional markets.
Santiment’s latest analysis suggests this correlation isn’t fading soon; if anything, it is becoming the new normal.
Interest Rates and Market Reactions
According to the analytics platform, each Federal Open Market Committee (FOMC) meeting tends to generate huge market reactions. In 2022, when rates climbed from near-zero to 4.50% by December, both crypto and equity markets experienced notable declines, with inflation peaking at 9.1%.
Santiment’s data suggest that traders often act preemptively, leading to heightened volatility in the days leading to an FOMC announcement. The platform analyzed several instances of FOMC decisions and Bitcoin’s corresponding price movements, revealing a recurring pattern: the asset’s price tended to react sharply to actual rate decisions as well as the prevailing macroeconomic sentiment.
In March 2022, after the Fed raised rates for the first time since 2018, BTC’s price dropped 5% within a week. The fall was an even more drastic 18% in June, following a 75 basis point (bps) hike. However, in September, the broader crypto market enjoyed a brief 6% uptick after the Fed announced another 75 bps hike. The rally was fueled mainly by speculative trading and declined soon after.
March 2023’s rate increase elicited a different response from Bitcoin, with the cryptocurrency surging 12% over two weeks as investors anticipated a slowdown in future hikes. This was seen in December of that year, when a 25 bps rate cut triggered a 15% rise in the value of BTC, as market participants viewed the decision as a pivot towards easing.
Nonetheless, the coin dipped 8% after the second FOMC meeting of 2024 which held rates steady at 5.25% to 5.50%. Conversely, a rate cut in September saw its price rise by 10% within 10 days.
Market Sentiment and Macro Impact
More recently, the Fed’s decision to maintain rates at 4.25% to 4.50% after its latest meeting saw BTC experience minor fluctuations, dipping below $84,000 before stabilizing. According to experts, this resilience resulted from prior anticipation of the Federal Reserve’s decision, meaning it came as no surprise.
On-chain data also revealed an increase in whale activity, with large wallets accumulating more than 200,000 BTC the month before the announcement. Additionally, traders are speculating on potential cuts in the second half of 2025, which they expect to reinvigorate crypto’s momentum.
Ultimately, despite some analysts downplaying it, the market’s sensitivity to interest rates suggests a lasting correlation between crypto and mainstream finance. Some believe crypto could eventually decouple from macroeconomic trends, but Santiment’s findings indicate that investors still respond strongly to traditional monetary policies.
