The Fed's interest rate hike, yet Bitcoin instead experiences a big pump? Decoding the "dislocation game" between the crypto market and interest rate cycles.

When traditional financial textbooks meet the crypto market, all classic theories seem to need rewriting. In 2024-2025, we witnessed the bizarre scene of "interest rates not falling during hikes and not rising during cuts," behind which is an astonishing game of misalignment between economic cycles and monetary policy.
The Collapse of Traditional Logic: The Unconventional Play of the Crypto Market
In traditional financial markets, the relationship between interest rate policy and asset prices is clear: raising interest rates suppresses liquidity, causing risk assets to fall; lowering interest rates releases liquidity, leading to market rises. However, this logic is facing unprecedented challenges in the crypto market.
The abnormal phenomenon in 2024: As the Fed maintains a high interest rate of 5.25%, Bitcoin skyrockets from $35,000 to $72,000, with an increase of over 100%. However, when the market widely expects interest rate cuts at the beginning of 2025, Bitcoin plummets 15% within a week after the first rate cut. This "interest rate hike rise, interest rate cut drop" abnormal phenomenon is a typical manifestation of the misalignment between the economic cycle and interest rate policy.
Unlike traditional markets, the crypto market exhibits a threefold amplification mechanism in response to interest rate policies: excessive reactions to 24/7 trading, emotional fluctuations dominated by retail investors, and the widespread use of leverage tools. This results in the same policy shocks causing volatility in the crypto market that is several times greater than that of traditional markets.
Why does the interest rate rise not lead to a drop but rather a rise? The "last mile" effect of the prosperity cycle.
The core logic of the "interest rate rise does not fall but rises" in the crypto market is that when the interest rate hike lags behind the crypto economic cycle, the market growth momentum is sufficient to offset the negative impact of liquidity tightening.
Scenario 1: Institutional adoption dividend period
The abnormal rise in 2024 is essentially the result of the institutional wave following the approval of Bitcoin spot ETFs being severely out of sync with the interest rate hike cycle. When the Fed began to raise interest rates, Wall Street giants had just received their entry tickets, and the allocation demand from institutions like BlackRock and Fidelity formed a "rigid buying pressure." At this time, the net inflow of ETF funds averaged $2.5 billion per month, completely offsetting the negative impact of tightening liquidity.
Dislocated Key Points: Institutionalization Process of the crypto market (Independent Cycle) › Macroeconomic Cycle › Monetary Policy Cycle
Scenario 2: Hard Constraints of the Halving Cycle
In April 2024, Bitcoin will complete its fourth halving, reducing the block reward from 6.25 BTC to 3.125 BTC, and the average daily new supply will decrease from 900 coins to 450 coins. This code-based "supply-side prosperity" hedges against artificial monetary policy. Data shows that within 180 days after the halving, miner selling pressure will decrease by about $800 million, equivalent to 12% of the Fed's balance sheet reduction during the same period.
Why does a rate cut not necessarily lead to a rise? The "liquidity trap" of the recession cycle.
The stimulating effect of interest rate cuts on the crypto market also highly depends on the degree of alignment with the economic cycle. When interest rate cuts occur during the recession period of the encryption ecosystem, traditional logic will completely fail.
Scenario 1: Liquidity Black Hole Under Regulatory Suppression
In March 2025, the Fed lowered interest rates by 25 basis points for the first time, but this coincided with the comprehensive investigation by the SEC into Ethereum staking services. Amid market concerns, the total locked value (TVL) in DeFi saw an outflow of $1.8 billion in one week. At this time, the liquidity released by the interest rate cut was completely swallowed by regulatory uncertainty, causing Bitcoin to drop instead of rise.
Misalignment essence: policy good news (interest rate cut) › regulatory bad news (strong regulation cycle) › market confidence collapse
Scenario 2: The "structural recession" of altcoin bear market
The current crypto market shows a differentiated pattern of "Bitcoin boom, altcoin winter." Although interest rate cuts have improved macro liquidity, funds are concentrated in mainstream assets like BTC/ETH, while the application layers such as DeFi, NFT, and GameFi continue to shrink. Q1 2025 data shows that the total market capitalization of altcoins has dropped from 40% to 22%, and the interest rate cuts have not been able to reverse the structural bear market.
The unique "triple cycle misalignment" model of the crypto market
Unlike traditional markets, crypto assets are influenced by the overlap of three cycles:
macroeconomic cycle (Interest Rate policy)↘
↘ crypto market trend
Encryption self-cycle (halving/upgrading) → Actual result
↗
Regulatory policy cycle (tightening and loosening)↗
When the three major cycles resonate upward (such as in 2020-2021), the market presents an epic bull market; when the cycle directions conflict (such as in 2024-2025), the single impact of interest rate policy is greatly weakened.
Unique configuration of the current cycle: crypto hedging under the shadow of stagflation
In 2025, the world faces the stagflation risk of "slow growth + sticky inflation," putting the Fed in a policy dilemma. In this environment, Bitcoin demonstrates dual characteristics of being a "digital gold" safe haven and the technical resilience of risk assets, making it "immune" to traditional interest rate logic.
Historical Reflection: Insights from Japan's Decline to the Summer of DeFi Cycle
Case 1: Japan's "Lost Decade" in its encryption version
The DeFi market from 2022 to 2023 perfectly replicated the dilemmas of Japan in the 1990s. Although Ethereum completed the Merge upgrade (similar to interest rate cuts for stimulation), black swan events such as Terra/Luna and FTX destroyed market confidence, causing DeFi TVL to drop from $180B to $40B. The benefits of technological upgrades cannot offset the cyclical misalignment of credit collapse, confirming the "ineffectiveness of interest rate cuts" theory.
Case 2: China's "Spot ETF Moment" in the 2016 Supply-side Reform
In 2016, the A-shares strengthened under the expectation of supply-side reform, analogous to the trend after the approval of Bitcoin ETF in 2024. The core logic is that structural reform (non-monetary policy) becomes the core variable of the dominant cycle, while interest rate policy takes a secondary position.
Investor Survival Guide: Seeking α Returns in Misaligned Cycles
1. Establish a "Cycle Priority" Analysis Framework
In the face of interest rate policy adjustments, first assess:
• What is the current dominant cycle? (Halving › Regulation › Intrerest Rate)
• What stage is the market in the encryption economic cycle? (Innovation period/Bubble period/Clearing period/Recovery period)
• Is lowering/increasing interest rates a "timely help" or "adding flowers to the brocade"?
2. Identify "false interest rate cut" signals
Be wary when interest rate cuts are accompanied by the following situations:
• Regulatory policies tightening simultaneously (current US environment)
• The supply of stablecoins continues to decline (liquidity outflow)
• The exchange reserve ratio is below 100% (credit risk)
3. Embrace the special window of "Interest Rate Bull"
Under the following conditions, an interest rate hike instead becomes a buy signal:
• Institutional funding channels have just opened (2024 ETF case)
• 6-12 months after the halving (supply shock manifests)
• Regulatory clarity improvement (elimination of policy uncertainty)
4. Configuration Strategy: From "β lying flat" to "α hunting"
In the era of cycle misalignment, passive holding strategies are ineffective. Suggestions:
• Core Position (60%): BTC/ETH, hedging against macro uncertainty
• Periodic Arbitrage (30%): Rotate based on Interest Rate - Economic Misalignment (e.g., overweight BTC during rate hikes, position in DeFi blue chips during rate cuts)
• Event-driven (10%): Key node games such as regulatory hearings, ETF approvals, halving, etc.
Conclusion: Finding opportunities in uncertainty amidst the misalignment of certainty.
The crypto market is undergoing a paradigm shift from "barbaric growth" to "institutional dominance", where the traditional interest rate transmission mechanism is being deconstructed layer by layer by technological cycles, regulatory cycles, and halving cycles. Investors in 2025 can no longer mechanically recite the mantra of "rate hikes lead to drops, rate cuts lead to rises", but should understand: the real opportunities lie within the misalignment of economic cycles and interest rate policies, and in the accurate judgment of market dominant forces.
When the next monetary policy meeting arrives and the CPI data shocks the market again, remember: there is no ineffective monetary policy, only investors who misjudge the cycle. In the crypto world, the early birds enjoy the bubble, while the latecomers bear the collapse; only those who are aware of the essence of the cycle's misalignment can traverse the bull and bear markets.

What do you think is the dominant cycle of the current crypto market? Feel free to share your perspective!
If you are interested in the theory of cycle misalignment, please like and bookmark this, as it will be the survival rule that is worth studying repeatedly in the next bull market.
Forward it to friends who are also confused in the crypto circle. Maybe your one share can help him avoid the next "Interest Rate big pump" trap.
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The comment section is now open, looking forward to your insights—In the world of encryption, everyone is a witness to the cycles and may also be the prophet of the next cycle.
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