Authored and Analyzed by: Amin Shojaei
Federal Reserve’s Interest Rates and Bitcoin – Introduction
In recent years, the relationship between the Federal Reserve’s interest rates and the value of Bitcoin has become a hotly debated topic in financial and media circles. Proponents of the cryptocurrency market claim that a decrease in interest rates drives capital toward high-risk assets like Bitcoin, while an increase exerts downward pressure on its value. But does this claim align with economic realities, or is it merely a promotional narrative? In this note, we examine this issue through the lens of the paradigm of large-scale capital flows in global financial markets and historical data analysis, demonstrating the extent to which this perspective is overly simplistic.
Federal Reserve’s Interest Rates and Bitcoin – Large-Scale Capital Flows in the Global Financial System
Global financial markets are dominated by major players such as pension funds, exchange-traded funds (ETFs), banks, and investment institutions, collectively managing trillions of dollars. These entities traditionally seek assets with high liquidity, predictable risk, and clear legal frameworks. For instance, the U.S. stock market, valued at approximately $50 trillion, and the global bond market, exceeding $100 trillion, are the primary destinations for such capital. In contrast, the total market capitalization of cryptocurrencies as of March 2025 is likely in the range of $2 to $3 trillion—a negligible share on a global scale. For example, in 2020, when the Federal Reserve slashed interest rates to near zero, the Nasdaq index surged by 40%, indicating that large capital flows favored technology stocks over cryptocurrencies.
Federal Reserve’s Interest Rates and Bitcoin – Oversimplification in Analyzing the Link Between Interest Rates and Bitcoin
Bitcoin advocates argue that lower interest rates, by reducing returns on low-risk assets like bonds, push investors toward riskier options such as cryptocurrencies. However, this view overlooks the complex reality of financial markets. First, high-risk assets are not limited to Bitcoin; startup stocks, derivatives, and real estate also fall into this category and often offer superior liquidity and reliability. Second, large financial institutions, which control the bulk of liquidity, are less inclined to invest in cryptocurrencies due to stringent regulations and conservative policies. For example, of the roughly $20 trillion in assets under management by U.S. investment funds, less than 0.5% is invested in Bitcoin-related ETFs (such as futures contracts). This suggests that cryptocurrencies remain a marginal option for large-scale capital.
Federal Reserve’s Interest Rates and Bitcoin – Quantitative Analysis: The Real Impact in Numbers
To better understand, let’s assume the Federal Reserve cuts interest rates by 1%. The U.S. money supply (M2) is approximately $21 trillion. Estimates suggest that with a 1% rate cut, 1 to 3% of this liquidity (equivalent to $210 to $630 billion) may shift toward high-risk markets. In the most optimistic scenario, if 5% of this amount flows into cryptocurrencies, we’re looking at $10.5 to $31.5 billion. Compared to the $2.5 trillion market cap of cryptocurrencies, this represents just 0.4 to 1.2% of the market. On the scale of global financial markets (over $300 trillion), this figure doesn’t even reach 0.01%. Such an impact can hardly justify claims of interest rates being a determining factor for Bitcoin’s value.
Federal Reserve’s Interest Rates and Bitcoin – Historical Data Analysis: Interest Rates and Bitcoin Over Time
To delve deeper, we analyzed data on the Federal Reserve interest rates and Bitcoin prices from 2010 to 2025. The chart below (Figure 1) illustrates these two variables over the specified period:
Figure 1: Federal Reserve Interest Rates vs. Bitcoin Price (2010-2025)
(Horizontal Axis: Year, Left Vertical Axis: Federal Funds Rate (%), Right Vertical Axis: Bitcoin Price (USD))
A) Periods of Low Interest Rates (2010-2015 and 2020-2021)
2010-2015: Interest rates remained steady at a very low 0.00-0.25% (post-2008 financial crisis era). Bitcoin’s price rose from $0.40 to $465.00—a significant increase. However, this growth was primarily driven by Bitcoin’s early adoption and the influx of retail investors into this emerging market, rather than interest rates alone.
2020-2021: Interest rates dropped again to 0.00-0.25% (due to the COVID-19 crisis). Bitcoin surged from $3,850.00 to $68,789.00 (an 18-fold increase). This period coincided with massive liquidity injections into the economy (COVID stimulus packages) and a rush of retail and institutional investors (e.g., Tesla’s entry into the Bitcoin market). While low interest rates may have indirectly contributed to this growth, other factors—such as market sentiment and widespread adoption—played the dominant role.
B) Periods of Rising Interest Rates (2016-2019 and 2022-2023):
2016-2019: Interest rates gradually increased from 0.25-0.50% to 1.50-2.50%. Bitcoin experienced significant volatility: rising from $1,000.00 in 2016 to $19,892.00 in 2017 (a peak), then falling to $3,217.00 in 2018, and climbing back to $13,017.00 in 2019. This indicates that rising interest rates did not have a consistent, direct impact on Bitcoin; rather, the fluctuations were more tied to cryptocurrency market cycles (the 2017 bubble and 2018 correction).
2022-2023: Interest rates rose sharply to 4.50-5.50%. Bitcoin fell from $47,835.00 to $16,000.00 (a 66% decline). While this drop coincided with rising rates, other factors—such as the collapse of major projects (Terra-Luna and FTX) and capital outflows from the crypto market—played a more significant role.
C) Period of Declining Interest Rates (2024-2025):
Interest rates decreased from 5.33% to 4.33%. Bitcoin rose from $53,857.56 to $105,403.10 (a 95% increase). While this growth might be attributed to the rate cut, other factors—such as positive regulatory developments (e.g., the approval of Bitcoin ETFs in the U.S.) and renewed market confidence—were also influential.
Federal Reserve’s Interest Rates and Bitcoin – Media Narrative Over Economic Reality
The data analysis reveals that the relationship between interest rates and Bitcoin prices lacks a consistent, predictable pattern. For instance, in 2016-2017, despite rising interest rates, Bitcoin surged, while in 2018, with continued rate increases, it fell—largely due to the market correction following the 2017 bubble. Similarly, in 2022-2023, Bitcoin’s decline coincided with rising rates, but other factors (project collapses) had a greater impact. These findings confirm that other factors—market sentiment, public adoption, regulation, and specific events—play a more significant role in Bitcoin’s price than interest rates. The narrative linking interest rates to Bitcoin appears to be more of a media-driven strategy to promote cryptocurrencies than a grounded economic analysis. Proponents of this space, by branding Bitcoin as “digital gold” or an “inflation hedge,” aim to attract retail investors. However, evidence suggests that in 2021, when interest rates were near zero, the actual inflow into the crypto market was around $10 to $15 billion—far less than what media hype promised.
Federal Reserve’s Interest Rates and Bitcoin – Conclusion
The claim of a direct impact of Federal Reserve interest rates on Bitcoin is more of a media-driven narrative than an economic reality, propagated by cryptocurrency advocates. Within the paradigm of large-scale capital flows, cryptocurrencies still play a minor role, and a 1% interest rate cut, at best, adds only 0.4 to 1.2% to the value of this market—an impact that is practically negligible on a global scale. Historical data analysis from 2010 to 2025 further supports this view: Bitcoin’s fluctuations over these 15 years have been more tied to crypto market cycles and specific events (such as collapses or regulatory changes) than to Federal Reserve monetary policy. Retail traders should not be swayed by this misleading media bombardment; experience shows that in most cases, following the release of U.S. economic data, markets experience short-term volatility, but within a day or two, prices revert to their prior trends. For example, in 2022-2023, Bitcoin’s decline coincided with rising interest rates, but in 2024, with a rate cut, prices quickly recovered and even surpassed previous levels. While Bitcoin may hold appeal for some retail investors, it remains a marginal option for large financial flows, and this narrative is more a tool for garnering attention than a fact-based analysis.
Shojaei, Amin. (2025). Analysis and Forecast of Iran’s Housing Market in 2025. Retrieved from [Amin Shojaei’s personal website]
کد کوتاه این مطلب : https://irantbs.com/?p=33311