Crypto Market Reactions to Fed Decisions

Santiment’s latest analysis reveals unpredictable crypto market reactions to Federal Reserve interest rate decisions.

In a March 20 post, Santiment contributor Brian noted that while some Fed decisions trigger rallies, others lead to sharp declines despite similar policy outcomes. This pattern has persisted since the Fed began raising interest rates sharply in 2022 to combat soaring inflation, increasing rates from near zero in March to 4.50% by December, as inflation hit a 40-year high of 9.1%.

This change rattled financial markets, causing stocks and cryptocurrencies to decline sharply. By late 2022, Bitcoin had plummeted below $16,000 from a peak of $69,000 in late 2021, with tightened liquidity and increased borrowing costs negatively impacting risk assets.

The crypto market has since remained sensitive to Fed policy. After the Fed held rates steady in March 2024, Bitcoin surged over $72,000, but fell sharply the following month. A similar pause in May prompted an instant recovery, while a July rate decision caused Bitcoin to drop 20% before stabilizing.

In September of last year, the Fed’s first interest rate cut triggered a strong rally. November’s pro-crypto election outcome combined with another rate cut sent Bitcoin to all-time highs, though the market lost momentum when rates were unchanged in December, leading to a correction.

The latest Federal Open Market Committee meeting on March 19 kept rates at 4.25%–4.50% as anticipated. Santiment noted that social discussions around this decision were lower than in past meetings, suggesting traders had already anticipated it.

Nonetheless, the market reacted positively. Bitcoin (BTC) rose 4.5% to $85,786, briefly reaching $87,431, while Ethereum (ETH) and Solana (SOL) gained 4% and 6%, respectively. The total crypto market cap increased by 2% to $2.91 trillion, with futures markets seeing $355 million in liquidations, mostly from short positions.

Fed chair Jerome Powell confirmed that two rate cuts are expected this year, but concerns about inflation and slowing economic growth remain. Given historical responses, initial moves may be misleading, leaving uncertainty about the sustainability of recent market gains.

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