Interest rate hikes arrived as expected. Why did Bitcoin withstand the negative impact?

Author: Blockchain Knight; Source: X, @BlocKnight21

Early this morning, the Federal Reserve announced a 25 basis point rate hike, raising the target range for the federal funds rate to 3.75%–4%. This is the Fed's first rate hike since 2023, and the decision was unanimously approved by all 12 members of the FOMC.

After the announcement, the market did not experience the previously feared sharp fluctuations. Bitcoin basically held steady around $75,000, while US stocks saw a significant decline, and US Treasury yields rose again.

The core reason is that the rate hike itself had already been priced in by the market.

Prior to the meeting, the interest rate market had already largely priced in a rate hike. Therefore, the real determinant of market trends was not whether or not a rate hike would be implemented, but rather the Fed's next move. Warsh's speech sent a clear signal: inflation remains the most pressing issue. Warsh stated that the US economy has strengthened further since the June meeting, the labor market is generally stable, inflation remains high, and the pace of price declines has not met policymakers' expectations. He also mentioned that stabilizing prices has been a persistent problem for years, and in the current economic environment, the lack of significant deterioration in employment should not lead to premature relaxation of focus on inflation. However, on the other hand, inflation remains above the 2% long-term target, therefore monetary policy needs to maintain sufficient restraint. More notably, interest rate forecasts have changed. The Fed's latest dot plot shows the median forecast for the federal funds rate at the end of 2026 has risen to 4.1%, up from 3.8% in June. Meanwhile, the Fed projects PCE inflation of 3.7% and core PCE inflation of 3.4% in 2026, both significantly higher than the 2% target. This means the market needs to reconsider the fact that US interest rates may remain high for a longer period, and further rate hikes cannot be ruled out. However, Warsh did not provide a definitive path forward. He emphasized that future policy will still depend on inflation, employment, and economic data, and he will not commit to any action at the next meeting. This is why the market did not follow the script of "rate hike = sharp drop in risk assets." Bitcoin had already undergone a correction before the meeting. Besides trading on the Fed's interest rate hike expectations, the market was also affected by the slow progress of the legislation, leading to a significant increase in long liquidation in the derivatives market. Some of the negative factors had already been priced in before the meeting. Therefore, when the rate hike was implemented and the policy outcome did not significantly exceed expectations, the market naturally did not experience a sell-off of the same intensity. Another noteworthy change is that data shows the correlation between Bitcoin and assets such as the US dollar, S&P 500, and Nasdaq has decreased. Regulatory policies, cryptocurrency market fund flows, and industry-specific events are increasingly influencing short-term prices. However, this does not mean the Fed's influence on Bitcoin has diminished. High interest rates still mean higher funding costs, and higher US Treasury yields will increase the opportunity cost of holding dollar assets. For Bitcoin, the current price performance only indicates that short-term selling pressure has been controlled. The real determinants of future price movements remain changes in liquidity and market risk appetite.