The Fed just hiked rates by 25bps, its first hike since 2023, and crypto is ripping. By the old playbook, this is when crypto should be getting crushed.
For years, my view of crypto was simple: it is basically a 3x leveraged Nasdaq ETF. Cheap money floods in, BTC goes to the moon. Rates rise, liquidity disappears and the magic internet money vanishes in a puff of smoke.
Risk-on, risk-off. Easy. But this time, something looks different.
BTC is up almost 17% this month, ETH more than 15% and Solana almost 31%. That's not one random coin catching a bid. It looks like the start of a broader crypto rally.
Why might this be happening?
Let's start with the least romantic explanation: short squeezes.
In August, more than $3bn of crypto shorts were liquidated in 24 hours, including more than $1bn of Bitcoin shorts in roughly an hour. Forced buying can turn a normal move into a price event.
But squeezes are temporary. They're not an investment thesis.
Another possibility is that the macro backdrop isn't quite as hostile as the headline “Fed hikes rates” makes it sound. The latest rally has coincided with broader risk appetite, rising equities and renewed institutional demand.
Which brings me to the more interesting question:
Can crypto decouple from the liquidity cycle?
The bull case is that something structural has changed. Bitcoin increasingly sits inside institutional portfolios, and there are now countless regulated investment products providing access to it.
The “debasement” argument is also becoming harder to dismiss when governments are running enormous deficits and bond markets are demanding greater compensation for financing them.
The bear case is much simpler: crypto is still a high-beta risk asset. The moment liquidity genuinely tightens, the old playbook could come roaring back.
The CLARITY Act doesn't settle the debate either. The Senate failed to advance the legislation this week in a 49–50 procedural vote, another setback for the industry's push for clearer US crypto regulation.
The most consequential question is this:
Can crypto broadly rally while the Fed is tightening?
That doesn't prove the old playbook is dead. But it does suggest the market is testing it.
If BTC can hold above $80,000 while the Fed remains restrictive, perhaps crypto really is developing a new investment thesis.
And if that happens, could Bitcoin genuinely be evolving into something closer to “digital gold”?
However, if the next liquidity shock sends the entire crypto complex straight back down, we'll know this was simply an anomaly.
In that case, perhaps crypto really is just the roulette wheel of the investment casino.
Time will tell.
GLA & DYOR.
Full disclosure: I own BTC, ETH, SOL and some Treasury companies.
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