Bond traders just flagged a rare risk for Bitcoin price, one it has not seen since 2023. They now expect the Federal Reserve to start raising interest rates again, likely by December. As the investors who buy and sell government debt, they bet real money on where rates head next. Therefore, the markets watch them as an early signal on the Fed.
A hike would be the Fed’s first since 2023. The last time policymakers were tightening, Bitcoin lost about 65%, yet that same squeeze also helped set its cycle bottom.
Bond Traders Now Expect Fed Rate Hikes
The bond market has turned. Traders and Fed Chair Kevin Warsh agree the inflation fight is not over, and markets now price a quarter-point hike as likely by September or October and all but certain by December, Bloomberg reported in its rate outlook.
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The pressure is stacking up. Inflation has sat above the Fed’s 2% target for five years, oil is climbing again after the Iran ceasefire collapsed, and heavy AI spending keeps stimulating the economy. Last week’s cooling June inflation print brought only brief relief before hike bets rebuilt.
The Last Time the Fed Hiked, Bitcoin Fell 65%
This is the rare part. The Fed has not raised rates since 2023, so a fresh increase would be Bitcoin’s first tightening in years.
During that last cycle, across 2022 and 2023, the Fed lifted rates from near zero to 5.5%, and Bitcoin sank from about $45,000 to a $15,500 cycle low on November 22, 2022, a drop near 65%.
However, the hikes themselves were mostly priced in. The worst damage came from surprises and pace, like the June 2022 jump to 75 basis points that, with the Terra collapse, drove a roughly 52% plunge.
By contrast, Bitcoin rose about 21% in early 2023, when the hikes were fully expected.
The Same Squeeze That Forged the Bottom
Here is the twist. That November 2022 low did not form after the Fed relented. It formed at the moment of peak hawkishness, and Bitcoin turned higher as the market finished pricing the tightening.
So a fresh hawkish shock could act the same way, flushing out the last sellers. Analysts already track a cluster of rare bottom signals, with on-chain metrics at four-year lows even as long-term holders refuse to sell.
What to Watch Next
For now, Bitcoin price sits near $63,800, down about 1% on the day, caught between fading inflation and rising hike bets. The CME FedWatch tool and the bond market now lean toward an increase, even multiple hikes as the worst case scenario.
Therefore, it is critical to watch the money flows first. Spot Bitcoin ETF flows tend to move before price, so a run of institutional outflows would be an early sign that big money is bracing for the hike, often before the Fed even acts. Right now, July is seeing a rare surge in inflows, contrary to the bearishness associated with rate hikes. That is what still keeps the bulls interested, as BTC is slightly up (1%), month-on-month.
That surge has a reason. Yusuf Fakhro, Partner at digital capital platform ARP Digital, ties the inflows to fading near-term hike risk:
“A softer June CPI on 14 July reinforced the case that the Fed stays on hold, and the market now prices a 94% probability of no change at the 28 to 29 July meeting. For a non-yielding asset pressured all year by higher-for-longer rates, removing near-term hike risk is the most supportive development available, and it is showing up in flows.”
He adds that nothing has been confirmed:
“This is a market that has stopped bleeding, not one that has confirmed an uptrend. That makes month end binary … treat the Fed meeting as the event that decides whether this recovery is real.”
The September, October, and December meetings are the real tests. If a hike arrives as expected, price may barely move, since traders have already positioned for it. A bigger or faster increase than the market expects is what tends to force a sharp drop, like the roughly 52% plunge in 2022. If that flush comes, history says it is often where a bottom forms, and the on-chain bottom signals analysts track would be the confirmation to watch.
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