Bitcoin faces 2022 parallels as Federal Reserve resumes rate increases

The Federal Reserve on Wednesday raised its policy rate by 25 basis points, moving the benchmark federal funds range to 3.75%–4.00% — its first hike in more than three years. Futures and other market signals indicate investors expect roughly 75 basis points more tightening across the next six months, suggesting the Fed could continue to lift borrowing costs. Market participants have drawn comparisons between the current backdrop and the Fed’s 2022 tightening cycle when assessing bitcoin’s outlook. At that time bitcoin had already retreated from its late-2021 peak; the asset was approximately 40% below its November 2021 high when the Fed began hiking in March 2022. After the initial 2022 move, bitcoin briefly rose about 18% over 12 days before entering a deeper decline of roughly 50% as losses spread across broader markets and crypto-specific turmoil emerged. Those precedents are limited, however. Bitcoin’s trading ecosystem was less developed for earlier Fed cycles, making direct historical comparisons imperfect. Still, the close resemblance to the 2022 sequence — bitcoin currently about 40% under its October high of $126,000 and approaching a one-year bear market — has raised the possibility that an initial relief rally could be followed by a more prolonged downturn if tightening persists. Inflation dynamics helped prompt the Fed’s decision: annual headline inflation has remained above 2% for more than five years, though core inflation (excluding food and energy) eased to 2.4%, its lowest in five years. New pressures on inflation have emerged from geopolitical tensions that have pushed WTI and Brent crude oil prices above $100 a barrel, while the U.S. 10-year Treasury yield has climbed to about 5%, tightening financial conditions and posing further headwinds for risk assets including bitcoin.