Many people still consider the Federal Reserve's rate hikes and the volatility of the crypto market as mere coincidences, but in fact, this is no longer the case. The relationship between the two has evolved from being completely unrelated at first to a close game now, and can even be said to have formed a certain degree of interdependence. Today, we will analyze how this relationship has developed and how it influences future market trends.

Going back to before 2020. At that time, the crypto market was still niche, with participants mainly retail investors and some small institutions, and it was not on the same level as traditional finance. The Fed's actions had almost no substantial impact on this circle, and occasional synchronized fluctuations could only be considered coincidences.

But after 2020, the situation completely reversed. The DeFi ecosystem exploded, and a large influx of institutional capital entered the crypto market, rapidly increasing the financial attributes of this field. Crypto assets began to be incorporated into the global risk asset pricing system, turning them into a genuine variable in macroeconomic cycles.

The key lies in the source of liquidity. The global dollar supply is controlled by the Federal Reserve. What happens when the Fed raises interest rates? The dollar appreciates, global liquidity tightens, and the attractiveness of risk assets declines. Crypto assets themselves do not have cash flow support and are entirely driven by investor expectations, making them highly sensitive to liquidity changes. Once the rate hike cycle begins, institutions start reducing their holdings, and the crypto market comes under pressure accordingly.

But it's not simply a matter of "rate hikes lead to declines." There is a complete transmission chain in between: rate hike → dollar strength → revaluation of risk assets → institutions gradually unwind. Understanding this logic allows you to see through most of the market volatility.