Bitcoin Draws 2022 Comparisons as Fed Restarts Rate Hikes

Bitcoin’s current downturn is drawing comparisons to its position just before the Federal Reserve’s first rate hike in March 2022, raising questions about whether a short-lived rally could give way to deeper losses.

Similar Setup to the 2022 Cycle

The Fed raised rates by 25 basis points Wednesday, lifting its benchmark range to 3.75%-4.00% in its first hike in over three years, with markets pricing in another 75 basis points of tightening over the coming six months. History suggests a single hike is unlikely, since the Fed has only gone “one and done” once since 1994 across 12 tightening cycles dating back to 1955.

For Bitcoin, comparable history is limited. While the cryptocurrency traded through the 2015 tightening cycle, thin liquidity and an underdeveloped market at the time make that comparison less useful. The 2022 cycle offers a closer match given today’s more mature market structure. Bitcoin peaked near $69,000 in November 2021 and had already fallen about 40% by the time the Fed hiked in March 2022.

Currently, Bitcoin sits roughly 40% below its October high of $126,000, trading near $76,130. After that March 2022 hike, Bitcoin rallied about 18% over 12 days before falling around 50% in the months that followed, raising the possibility of history repeating, though one prior cycle offers limited evidence, and 2022’s decline coincided with broader losses across stocks, bonds and metals alongside turmoil specific to the crypto industry.

Inflation Progress Meets a New Energy Shock

The Fed’s hike stemmed from persistent inflation, which has stayed above 2% annually for more than five years, though core inflation eased to 2.4%, its lowest level in five years. That progress is now being tested by a fresh energy shock, as Middle East tensions have pushed WTI and Brent crude above $100 a barrel, threatening to reignite price pressures.

Global bond yields have also risen, with the US 10-year Treasury yield reaching 5%, adding further strain to financial conditions. With Bitcoin’s bear market nearing the one-year mark, the key question now is whether a fresh hiking cycle extends the downturn further.