Crypto analyst Sherlock suggested that the probability of the Fed raising interest rates next week has risen to approximately 90%, which could create significant selling pressure on Bitcoin (BTC).
According to data shared by Sherlock, the probability of the Fed raising interest rates increased from 58.4% to 86.4% in just seven days. Following this development, the analyst examined how Bitcoin performed after the 20 Fed interest rate hikes that have occurred since 2015.
Bitcoin Price Initially Rises, Then Falls After Interest Rate Hikes
According to the analysis, Bitcoin has generally not reacted sharply on the days when interest rate decisions are announced. In fact, on 11 out of 20 interest rate hikes, BTC ended the day higher. However, this initial reaction has often been misleading. On 10 of those 11 days of gains, Bitcoin was trading below the level it was at a month later on the day the interest rate decision was announced.
According to Sherlock’s data, in 17 out of the 20 interest rate hikes examined, Bitcoin was at lower levels 30 days later. Furthermore, in 19 out of those 20 examples, BTC fell below its price on the day the interest rate decision was announced, at some point during the month-long period following the decision.
During this period, Bitcoin’s median decline was calculated at 9.3%. The analyst noted that if BTC is around the $78,000 level, a pullback of similar magnitude could take the price to approximately $70,700.
In previous periods when the Fed began a new monetary tightening cycle, the losses were even greater. Following the first interest rate hike in December 2015, Bitcoin lost 19% of its value in 30 days. Although BTC initially showed resilience in the interest rate hike cycle that began in March 2022, it experienced a drop of up to 46.3% within 90 days.
Sherlock also pointed out that the market is not pricing in just a single interest rate hike. According to futures market pricing, there is a 72.6% probability that interest rates will be at least 50 basis points above current levels in December.
According to the analyst, Bitcoin may therefore trade sideways or experience a short-lived rise on the day the FED decision is announced. However, if price behavior from past interest rate hike periods is repeated, there is a risk of a more significant pullback in the 30-day period following the decision.
