Bitcoin Goes Left, Gold Goes Right: Fed Rate Hike Expectations Intensify Market Uncertainty
AAVE+0. 21%
Shortly after midnight on May 21, a report broke across major financial news apps stating that the U.S. Treasury Department had announced that cryptocurrency transactions exceeding $10,000 would need to be reported to the IRS. At that time, the market was in the midst of recovering from the panic triggered by the crash the previous day. Affected by the news, the "still shaken" Bitcoin briefly dropped 5.1%, falling to a low of $38,109.6.
However, given that the decline on May 19 was comparable to the March 12, 2020 crash, the crypto market had a strong need to rebound. As of press time, Bitcoin had modestly recovered to $40,206.8, though it still falls short of the $42,398.2 high recorded before the news broke.
According to OKX Research, Bitcoin faces strong resistance in the $42,000–$43,000 zone and has yet to break through this area effectively as of now. If it breaks through with sufficient volume, there is potential to challenge $46,000; if it fails to break through repeatedly, there is risk of further decline below $40,000 and another bottom test. Before market sentiment stabilizes, investors should exercise proper risk management when trading.
Crypto Market Hit by 5·19 Crash — Is the Bull Market Over?
On May 19, the crypto market experienced its steepest decline since March 12, 2020. OKX market data shows that Bitcoin fell from its daily high of $43,816.3 to as low as $29,000, a decline of 34%. Ethereum, the second-largest cryptocurrency by market cap, dropped from $3,464.18 to a low of $1,764.5, with a maximum decline of 49%. If the majors suffered this much, one can only imagine the state of altcoins — many were cut in half, and some more extreme cases saw declines of 80%–90%.
The total crypto market cap shrank from $2.13 trillion to $1.53 trillion, a 28% reduction. As with any previous large-scale decline in the crypto market, derivatives and leveraged traders bore the brunt of the impact. OK Link data shows that in the 24 hours following the crash, Ethereum lending protocol liquidations reached $385 million, a record high, with AAVE V2 leading at $177.5 million in liquidations.
Data from May 20 shows that the Fear & Greed Index dropped directly from 23 to 11, rated as "Extreme Fear." The Fear & Greed Index originates from Buffett's investment philosophy — be greedy when others are fearful, be fearful when others are greedy — with a threshold of 0–100. A reading of 0 indicates "Extreme Fear," a sign that investors are overly anxious, while 100 signifies "Extreme Greed," suggesting the market may be due for a correction.
Since Bitcoin transitioned from short-term consolidation to a downtrend on May 11, its decline had reached 31% by May 21. Affected by the consecutive drops, Bitcoin's year-to-date gains fell from 119% at its all-time high of $64,846.9 on April 14 to 37%, a decrease of 82 percentage points.
The crash in Bitcoin has posed no small test for investors, and polarized market voices are becoming increasingly apparent. Some believe the bull market is over, citing several reasons: First, a substantial amount of profit-taking has accumulated in the market. Bitcoin's maximum gain since March of the previous year exceeded 16x, and institutions that entered the market after October also posted impressive returns, increasing the pressure to cash out. Second, the Federal Reserve's previously steadfast commitment to loose monetary policy has begun to waver. Bitcoin's soaring price is closely tied to global liquidity abundance. Once the U.S. enters an interest rate hiking cycle, Bitcoin is likely to weaken. Third, the increasingly wild run-up in the crypto market has prompted regulators in various countries to tighten oversight, increasing the likelihood of policy-driven headwinds. Finally, the technical indicators are no longer favorable. After Bitcoin broke below the daily MA120, its rebounds have been weak, and in recent days it has even failed to sustainably hold above MA200. MA120 is generally considered a key indicator for mid-term trend shifts, while MA200 is viewed as the line separating bull from bear markets.
Those who believe the bull market is not over argue that transitioning from bull to bear takes time — it doesn't happen through a single steep crash. Rather, it unfolds through prolonged consolidation, gradual decline, then a sharp crash, ultimately ending with most participants liquidating and exiting. The current situation is merely a pullback in the mid-stage of the bull market, with negative news hitting all at once. After the deleveraging from the crash, the market will return to rationality and capital will flow back to fundamentally sound assets. They view this crash as yet another epic redistribution of Bitcoin筹码.
According to data from CryptoQuant's analysis platform, within 24 hours of the crash, stablecoin inflows to multiple cryptocurrency exchanges hit a record high of $5.28 billion, indicating that whales were buying the dip again. Additionally, Glassnode data shows that whales transferred 19,639 Bitcoin out of crypto exchanges, worth approximately $791 million.
The chart below also shows that, compared to the large Bitcoin inflows to exchanges seen in previous days, the inflow volume over the past two days has notably decreased.
Crypto analyst Lark Davis pointed out that the recent decline pushed Bitcoin's 14-day Relative Strength Index into oversold territory for the first time since March 2020, suggesting the crash may have entered a consolidation phase.
Some analysts believe it is still too early to draw conclusions about Bitcoin's recent decline. However, Bitcoin's historical cycles have shown us that before a bull market peaks, every 30%–40% pullback is a normal occurrence — and the current crash is merely the third such event in this bull cycle.
Glassnode's MVRV Z-Score chart shows that in previous bull market peaks, it once exceeded 10, but in this bull cycle, it has not yet reached 8 as of now, which seems to suggest that Bitcoin's price has not yet topped out. The MVRV Z-Score is an indicator used to assess when Bitcoin is overvalued or undervalued relative to its fair value.
Worth mentioning, due to this decline, Bitcoin's market dominance has recovered from dropping below 40% back above 43%.
The Fed Discusses Tapering, Gold Attracts Bitcoin Funds
Since the panic selling occurred on the evening of May 19, attention in the community over the past few days has been largely focused on analyzing pre-crash market conditions. However, following the sell-off wave, the Federal Reserve released the minutes from its April FOMC policy meeting in the early hours of May 20. For the first time, the minutes mentioned the possibility of beginning discussions to adjust the pace of asset purchases. This was interpreted as a potential shift away from the Fed's pandemic-era monetary easing policy.
Following this news, U.S. stocks fell first, gold gave up its gains for the day, and Bitcoin, which had dropped to $29,000 at 21:00 on May 19, gradually rebounded above $40,000. However, after the Fed released the meeting minutes, it once again fell to $34,909.8. As the contents of the minutes were gradually digested, U.S. stocks recovered most of their losses, gold turned positive, and Bitcoin also climbed back above $39,000.
Previously, comments from Yellen that seemed to hint at rate hikes sent shockwaves through the market, only stabilizing after she walked back the rate hike rhetoric. This illustrates the market's ever-increasing sensitivity to rate hike expectations. Analysts believe that low interest rates are a strong bullish factor for Bitcoin. Since the COVID-19 pandemic, central banks in Europe and the U.S. have pursued extremely loose monetary policies, driving up inflation expectations in financial markets. Many investors have viewed Bitcoin, known as "digital gold," as a safe-haven against dollar depreciation. Once the rate hike hammer falls, it will inevitably have a significant impact on Bitcoin's trajectory.
As for when the Fed's rate hikes will actually arrive, it may be worth reviewing the Fed's previous rate hike pace. Over the past 20 years, the U.S. has gone through only two tightening cycles: the 2003–2006 rate hike cycle and the 2014–2018 QE exit and rate hike cycle. Both cycles lasted approximately 3–5 years, meaning that once the Fed's tightening mode kicks in, it will have a long-lasting and sustained effect.
Referencing the Fed's pace before the previous tightening cycle began: In May 2013, the Fed first publicly raised the possibility of discussing an exit. In September 2013, the Fed outlined the reasons for exiting QE and what methods would be used to taper QE. Then in December 2013, the Fed formally and substantively cut QE, and finally entered the actual tapering phase in January 2014. Therefore, market consensus is that the Fed may begin exiting QE in the second half of 2021 or the first half of 2022. If implemented over one year, it would release a clear rate hike expectation in the second half of 2022, with actual rate hikes commencing in 2023. Historical evidence shows that after the Fed announces rate hikes, U.S. stocks experience varying degrees of decline, and with tighter market liquidity, this will naturally have an adverse effect on crypto assets.
Additionally, JPMorgan analysts believe that institutional investors are leaving the Bitcoin market and turning to gold. Since early May, Bitcoin has dropped 28%, while gold has risen 5% and recently approached $1,900 per ounce, reaching a new high since January 8. To some extent, gold's recent strength has also weighed on Bitcoin's price.
Regarding the crypto market crash, "Investment Queen" Cathie Wood stated that she still firmly believes Bitcoin will reach $500,000, that she is currently experiencing a missed opportunity but may not necessarily be at the bottom. Meanwhile, Elon Musk, recently accused of "betrayal," also declared during the crash that "Tesla has Diamond Hands" — meaning he firmly intends to hold onto his Bitcoin.
Historical evidence shows that discussions about QE exit and substantive QE exits both trigger noticeable market reactions. In the past, due to Bitcoin's smaller market cap, its correlation with mainstream financial assets was not particularly high. However, given this bull cycle's explosive market cap growth, Bitcoin's relationship with mainstream markets is bound to grow closer. Between May and December 2013, due to expectations of tightening monetary policy, gold faced significant pressure, and its price dropped 18%. It is worth noting that the Fed's current quantitative easing scale is far greater than it was in 2013, so when it opens the door to discussing tapering, future volatility in the crypto market may also intensify.
Disclaimer
This article may contain product-related content not applicable to your region. This article is intended to provide general information only and makes no representation as to the accuracy or completeness of any information contained herein. The views expressed in this article are those of the author and do not represent the views of OKX. This article is not intended to provide, and should not be relied upon as, any of the following: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holdings in digital assets (including stablecoins) involve a high degree of risk and may fluctuate dramatically, or even become worthless. You should carefully consider whether trading or holding digital assets is appropriate for you in light of your financial situation. Please consult your legal/tax/investment professionals regarding questions specific to your circumstances. Any information contained herein (including market data and statistics, if applicable) is provided for general reference purposes only. While all reasonable precautions have been taken in preparing such data and charts, we assume no responsibility for any factual errors or omissions herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, or excerpted in portions of 100 words or less, provided that such use is for non-commercial purposes only. Any reproduction or distribution of the full article must prominently state: "This article is copyrighted © 2025 OKX, used with permission." Permitted excerpts must cite the article title and attribute the source, e.g., "Article title, [author name (if applicable)], © 2025 OKX". Some content may have been generated or assisted by artificial intelligence (AI). Derivative works and other uses of this article are not permitted.
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