After the interest rate decision of the US Federal Reserve (Fed), Bitcoin has become active. How did Fed decisions affect Bitcoin over the past 10 years?

The Fed lowered the target range for the federal funds rate by 50 basis points to 4.75–5 percent by cutting the interest rates. While interest rate cuts are expected to create more favorable conditions for risky assets, it's not clear how this one will affect the cryptocurrency market.

The historical relationship between interest rate cuts and Bitcoin

A statement by Lookonchain confirms that Bitcoin has been successful in low interest rate periods. For example, between the beginning of 2020 and the end of 2021, when the Fed lowered interest rates to near zero to mitigate the effects of the COVID-19 pandemic, Bitcoin experienced one of its most impressive bull runs.

During this period, the price of Bitcoin rose from approximately $3,850 in March 2020 to $69,000 in November 2021. This increase was driven by easy access to capital, increased risk appetite, and the weakening of the dollar.

Investors with high risk appetite can turn to risky assets such as Bitcoin in periods of low interest rates.

There is a different market in 2024

However, the economic situation in 2024 is different from the 2020-2021 period. Although the interest rate cut revived interest in Bitcoin, the general conditions are quite different from previous years.

Contrary to the environment filled with incentives during the pandemic period, the Fed raised interest rates in 2022 and 2023 to fight inflation, and inflation pressures remain a concern.

During the interest rate hike cycle that began in early 2022, the price of Bitcoin fell from its 2021 peak and lost momentum. With the rise in interest rates, investors turned away from speculative assets like Bitcoin and preferred safer, interest-bearing investments.

Although the Fed may turn to interest rate cuts again, some analysts emphasize the need for caution.

One of the most important differences is that despite the interest rate cut decision, interest rates remain higher compared to the pandemic period. In addition, the number of institutional investors in the cryptocurrency market has increased and they may adopt a cautious approach.