Everyone usually thinks that when the Federal Reserve raises interest rates, the stock market and cryptocurrency market will fall. After all, saving money in the bank becomes more profitable after a rate hike, and people are less inclined to invest in high-risk assets. However, sometimes after a rate hike is announced, the market actually rises sharply. This isn’t so complicated; it’s just that the market is playing with “expectations,” not the rate hike itself.

Simply put, the rate hike has long been anticipated. Before the Federal Reserve officially announced the rate hike, various institutions and investors had already guessed that it would happen, selling off stocks and cryptocurrencies ahead of time. By the time the rate hike is officially announced, uncertainty disappears, all the bad news is out, and those who shorted the market hurry to close their positions, leading to funds entering the market to buy at the bottom, naturally causing prices to rise, making it seem like the rate hike became good news.

Another key point is to see how the Federal Reserve communicates after the rate hike. If they clearly state that there will be no more hikes for now or even that there might be rate cuts in the future, the market will immediately rejoice. Especially for technology stocks and cryptocurrencies, which are sensitive to interest rates, what they fear most is persistently high rates. As long as they see that the rate hike is nearing its end, valuations will rebound, and prices will follow suit.

Additionally, don’t just look at how much the rates are increased; consider the real interest rates. If inflation rises faster than the interest rate hikes, money will still devalue by being held, and people will still be willing to invest in the stock market and cryptocurrency market. Coupled with the fact that the U.S. economy hasn’t collapsed and companies are stable in making profits, they can also withstand the pressure of rate hikes.

Finally, the cryptocurrency market has its own favorable factors, such as the approval of ETFs and favorable industry policies, which can amplify the rebound after a rate hike. But remember, this kind of increase is mostly a short-term rebound, not genuine good news from the rate hike. If inflation rises again afterwards and the Federal Reserve continues to be aggressive with rate hikes, the market will quickly fall back.

Will the cryptocurrency market surge again if the Federal Reserve raises rates one more time this year?

To get straight to the conclusion: Don’t expect continuous surges; at most, there might be a short-term spike, and the variables are particularly large.

The cryptocurrency market is inherently high-risk and volatile, and it fears continuous rate increases the most. If another rate hike occurs this year, it will be more profitable to keep money in U.S. Treasuries or banks, and people will be unwilling to invest in cryptocurrencies. This is fundamentally bad news and will not immediately turn into a bull market just because the rate hike has occurred.

How things unfold specifically depends on three points: First, whether the market has already fallen beforehand. If the market has anticipated the rate hike, cryptocurrency prices may have already dropped in advance. Once the rate hike is officially announced, and the bad news is fully priced in, those who shorted may close their positions, leading to a brief rebound, but this is merely a breath of relief, not a true surge. If inflation suddenly spikes and the market realizes rate hikes will continue, the cryptocurrency market will undoubtedly crash.

Second, how the Federal Reserve communicates after the rate hike is more important than the hike itself. If they say, “This is the last one; there will be no more hikes, and there may even be cuts next year,” the market will be excited, and the cryptocurrency market will see a decent rebound. However, if they say, “Inflation has not improved; there may be further hikes,” then even if they complete the rate hike, prices will not rise, or they may increase slightly before falling back.

Third, the cryptocurrency market's own news will also affect the trend. For example, the inflow and outflow of ETF funds, regulatory news, and contract liquidations may temporarily overshadow the impact of the rate hike, but these are all short-lived and cannot withstand the long-term pressure of high interest rates.

In summary:

If the market has already fallen + the Federal Reserve says there will be no rate hikes → Short-term rebound; don’t expect sustainable surges;

If there’s a sudden hike + further hikes are expected → The cryptocurrency market will fall directly;

If the hike occurs as expected, but there’s no indication of stopping → Back-and-forth fluctuations; contracts are prone to liquidation.

Li Hui finally says, the current price of Bitcoin is close to its annual high, and pursuing more still requires rationality!

Li Hui interprets world economic news and analyzes global cryptocurrency trends. During his studies in the U.S., he conducted in-depth research on mainstream cryptocurrencies such as BTC, ETH, NVDA, and TSLA. For those who are unsure about trading, feel free to scan and follow the public account: Zhang Lihui 6

This article is published exclusively by Zhang Lihui and is for reference only; risk is borne by the reader! Li Hui lastly reminds cryptocurrency friends: trading comes down to persistence; it’s not just about predicting rises and falls, but about maintaining one's composure.

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