OKX Research Institute: Federal Reserve Rate Hike "Settled", Where Will the Crypto Market Go?

OKX Research Institute

On March 17, the much-anticipated Federal Reserve rate hike finally settled: The Federal Reserve announced a 25 basis point increase in the target range for the federal funds rate to 0.25% to 0.5%, basically in line with market expectations.

Federal Reserve Chair Powell stated: If we believe a 50 basis point hike is appropriate, we will do so, and we can well determine that we need to take more action quickly. The Federal Reserve has not yet made a decision on the next interest rate adjustment, monetary policy cannot 100% solve inflation problems, and we do not expect inflation problems to make progress in the near term.

OKX Research Institute believes that previously, against the backdrop of high inflation, the Federal Reserve issued hawkish statements several times, indicating that continuous rate hikes to curb inflation are imperative. The market reacted before the official implementation, with some funds leaving early to watch from the sidelines to avoid risks brought by monetary policy tightening, so market performance was relatively mild after the rate hike announcement.

It is worth noting that this rate hike, as the Federal Reserve's first since December 2018, is only the beginning. Subsequently, the benchmark rate will be continuously raised, affecting global financial markets. The balance sheet reduction plan to be announced as early as May will also bring more uncertainty to the market.

1. Why Does the Federal Reserve Want to Raise Rates: Paving the Way to Bottom-Fish Global Assets?

While the world is focused on the Federal Reserve rate hike and why it wants to raise rates, let's first talk about who the Federal Reserve is.

The Federal Reserve is the largest holder of U.S. federal debt. The Federal Reserve System consists of the Board of Governors in Washington, D.C. and 12 regional Federal Reserve Banks distributed across major cities nationwide. Its actual function is as the U.S. central bank. The Federal Reserve derives its power from the U.S. Congress to exercise responsibilities such as formulating monetary policy and supervising U.S. financial institutions.

As the U.S. central bank, the Federal Reserve shoulders the dual mandate of maintaining price stability and promoting full employment. Interest rates are one of the most important tools for the Federal Reserve to achieve policy goals because interest rates can simultaneously affect unemployment and inflation rates.

According to economic principles, although rate cuts can stimulate employment, they may trigger inflation, so crypto assets and gold may become tools to hedge against inflation. Conversely, rate hikes curb inflation and cool economic growth, while also leading to higher interest rates, reduced social capital flow, and lower consumer demand.

More intuitively, as bank interest rates rise, residents' deposits of hot money will also increase accordingly. Liquidity in financial markets including securities and crypto assets will decrease, with large amounts of funds flowing back to banks, constituting a significant negative factor.

It is evident that rate hikes not only impact financial markets but also further affect consumer markets. So why does the Federal Reserve want to raise rates? Because the U.S. dollar as a global currency, its tidal effect affects global economic conditions, thereby bringing asset price fluctuations worldwide. The U.S. can precisely use monetary policy adjustments to complete harvesting of other countries. Simply put, rate hikes cause capital from various countries to flee their homelands and flow back to the U.S., followed by plummeting prices of quality assets such as land, enterprises, and minerals. Meanwhile, Wall Street capital holding massive funds can bottom-fish at low prices, capturing returns several times higher than usual.

Catalyzed by the black swan event of the COVID-19 pandemic, global capital accelerated its return to the relatively prosperous U.S. to complete the goal of risk avoidance and value appreciation. Now, the U.S. confirming interest rate increases will further exacerbate the economic plight of many underdeveloped countries.

2. This Round of U.S. Rate Hikes Is Inevitable and Has Triggered Chain Reactions

Previously, the outbreak of COVID-19 forced the Federal Reserve to engage in massive money printing, temporarily delaying U.S. economic decline and also driving continued price increases in crypto assets. However, the money printed by the Federal Reserve due to the pandemic ultimately needs real assets to support it. Rate hikes ultimately make global assets flow to the U.S. to support U.S. economic recovery, enhance the initiative of the U.S. dollar, and solidify its dominant global position.

According to data from the U.S. Department of Labor, the U.S. Consumer Price Index soared 7.9% year-on-year in February, hitting a 40-year high. This means rate hikes are already on the bowstring. Therefore, from any perspective, this rate hike is inevitable. Of course, U.S. rate hikes will definitely cause chain reactions. Let's simply list two typical examples:

First is the global wave of rate hikes. The Federal Reserve's rate hike has caused multiple central banks worldwide to follow suit to minimize the possibility of domestic capital flowing to the U.S., triggering a global wave of rate hikes.

Looking back at major central bank rate decisions over the past week: The Bank of England raised its benchmark rate from 0.5% to 0.75%; the Bank of Japan maintained its benchmark rate at -0.1% unchanged, keeping the 10-year government bond yield target around 0%; the Bank of Brazil raised rates by 100 basis points to 11.75%.

Of course, the Federal Reserve's rate hike was within expectations, and the entire global market had fully priced in expectations for this rate hike. Capital markets had already reacted in advance and were not severely affected for the time being.

(Data source: OKXOKX)

Second is changes in global commodity prices. Due to global energy tensions and supply chain disruptions caused by the ongoing Russia-Ukraine conflict, commodity prices have risen broadly, with U.S. WTI crude oil futures briefly breaking $130 per barrel and gold soaring to a historical high of $2058 per ounce.

叠加此次美联储加息, 全球大宗商品价格又被抬高, 当然逻辑很好理解, 资本市场外溢的资金一定程度上涌向了消费市场, 如小麦期货价格从每蒲式耳8美元飙升至12美元以上.

However, what concerns crypto circle investors most is still the specific impact of rate hikes on the future of digital assets, after all this affects our wealth fluctuations.

3. What Impact Does the Federal Reserve Rate Hike Have on Cryptocurrency?

The Federal Reserve rate hike has settled, announcing a 25 basis point increase in the target range for the federal funds rate to 0.25% to 0.5%, lowering the median forecast for this year's GDP growth by 1.2 percentage points to 2.8%, and raising the median forecast for this year's inflation expectation, the core PCE price index, by 1.4 percentage points to 4.1%. Federal Reserve Chair Powell said that the Federal Reserve's primary task is to return inflation to 2%, and balance sheet reduction is equivalent to indirectly raising interest rates, an effective tool for tightening monetary policy.

This rate hike, as the Federal Reserve's first since December 2018, will naturally deeply affect the crypto assets market. OKX Research Institute believes that rate hikes will lead to reduced market liquidity, bank interest and Treasury yields will rise, and the U.S. dollar will also appreciate. Investment and wealth management funds will return to banks, Treasury bonds, and U.S. dollar markets. This means the crypto circle will face selling risk, and funds voting with their feet will instead flow into stable investment channels such as bank bonds. Market liquidity will be withdrawn, and the future market with weakened support will face more uncertainty.

Recalling the Federal Reserve rate hike of 2018, it was precisely when global economic growth momentum was declining and demand was slowing, followed by the U.S. economy in a mild recovery state, and inflation rates had not reached high points.

Looking back at crypto circle trends, this is distressing: Bitcoin fell from $13,234 at the beginning of 2018 to $3,638 at the end of 2018. From the following Bitcoin K-line trend on the OKX Trading platform, the Federal Reserve's rate hike at that time had a significant impact on cryptocurrency.

(Data source: OKXOKX)

In summary, OKX Research Institute believes that if the Federal Reserve continues as planned to execute six consecutive rate hikes, the impact on the crypto market will be enormous. Facing this Federal Reserve rate hike announcement, Bitcoin seemingly has not entered a downtrend, but all this was rehearsed in advance.

At the end of last year, the Federal Reserve announced it would begin reducing bond purchases and hinted at rising interest rates, and crypto assets had already entered decline mode. Therefore, we can view the slight fluctuation in this market as a sign that this negative factor has already been fully released earlier. As crypto circle investor Michael Novogratz judged, with Federal Reserve rate hikes, Bitcoin may continue to trade within a price range this year, rather than rising significantly.

Additionally, The Wall Street Journal reported that the Federal Reserve's first rate hike in more than three years opens the curtain for subsequent multiple rate hikes, with the goal of preventing the U.S. economy from overheating and controlling inflation at a 40-year high. In the future, the game between interest rates and inflation presents both challenges and opportunities for crypto assets. In this regard, crypto circle investors should maintain real-time attention to avoid risks.

Disclaimer

This article may contain product-related content not applicable to your region. This article is dedicated to providing general information only and does not take responsibility for any factual errors or omissions therein. This article represents only the author's personal views and does not represent OKX's views. This article is not intended to provide any of the following advice, including but not limited to: (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. Holding digital assets (including stablecoins) involves high risk, may fluctuate significantly, and even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions about your specific situation, please consult your legal/tax/investment professional. The information appearing in this article (including market data and statistical information, if any) is for general reference only. Although we have taken all reasonable precautions in preparing these data and charts, we assume no responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in full, or excerpts of 100 words or less from this article may be used, provided such use is non-commercial. Any reproduction or distribution of the entire article must also prominently state: "This article is copyrighted © 2025 OKX, used with permission." Permitted excerpts must cite the article name and include attribution, for example "Article Name, [Author Name (if applicable)], © 2025 OKX". Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works or other uses of this article are not permitted.

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