Cryptocurrencies rallied Thursday after the Federal Reserve delivered its first interest-rate increase since July 2023, a counterintuitive reaction given that the FOMC decision makes interest-bearing investments more attractive relative to risk assets.
Bitcoin rose nearly 1% over 24 hours to around $76,330, while Zcash surged more than 23% to a record high. The dollar index climbed above 100 for the first time since late July, typically a headwind for crypto, but risk sentiment briefly held firm.
Traders familiar with prior Fed tightening cycles, however, are approaching the move cautiously. Bitcoin remains roughly 40% below its October record high of $126,000 — a gap mirroring its positioning in March 2022, when the Fed began raising rates while BTC sat about 40% below its November 2021 peak. Over the 12 days following that initial tightening phase, Bitcoin rallied 18% before sliding 50% over the months that followed, a period that also saw the collapse of exchange FTX.
The early relief leg of that pattern appears to be repeating: Bitcoin has held its ground despite the U.S. Clarity Act being shelved and the first rate hike in three years. But exchange-traded fund flows tell a different story. Spot Bitcoin ETFs saw $746 million exit on Tuesday and Wednesday alone, underscoring persistent institutional weakness.
History also argues against a single rate increase being a one-off. Since 1994, the Fed has raised rates once and stopped only one time. Futures markets are now pricing in an additional 75 basis points of hikes over the next six months, and Goldman Sachs moved its forecast for the next increase forward to October.
Complicating the outlook, the Fed is tightening into a supply shock it cannot directly address. Core inflation has eased to 2.4%, its lowest level in five years, yet Brent and WTI crude both remain above $100 a barrel and U.S. diesel prices hit a record this week. The 10-year Treasury yield sits near 5%, though it edged slightly lower to 4.984% following the Fed decision; the 30-year fell to 5.334% and the 2-year to 4.705%.
Fed Chair Kevin Warsh acknowledged the constraint directly, saying the central bank cannot affect individual prices but can work to stop relative price changes from broadening out.
The coming month end will provide the key test: the rally from 2022 peaked and petered out around that date four years ago. Until then, early signs of optimism are visible in Bitcoin's resilience and Zcash's surge, even as macro headwinds and ETF outflows linger.
