2022 was a tough year for Bitcoin. The price dropped from over $46K to $16K. Many pointed to rate hikes and crypto bankruptcies as the main reasons. These certainly played a role, but perhaps not as big as many thought.

Let’s look at the numbers.

📊Impact of Fed Rate Hikes on Bitcoin Price

Many analysts — myself included — believed that the Fed’s quantitative tightening was the major reason for Bitcoin’s price drop. The Fed hiked 75 bps four times in 2022, the most rigorous rate hikes in decades.

But when I took a closer look at the numbers and correlations, I realized that not all of the 75 bps hikes had the same impact.

The above chart shows the impact of Fed rate hikes. Percentage price changes for each month are visualized for the S&P 500 (green) and Bitcoin (orange). The blue dots are the Fed rate hikes.

The short version: In the last 24 months, there is only a small correlation between Fed rate hikes and percentage changes in S&P 500 and Bitcoin price.

Let’s look at this in detail.

When the first hike rates happened at the beginning of 2022 we indeed saw prices going down. However, this effect diminished over time.

Even though the Fed hiked 75 bps in July and September 2022, Bitcoin price closed at 17% higher and then barely changed (-3.1%). We can see similar patterns when looking at the S&P 500.

This gets more confirmation when we look at previous data.

During the 2017 bull run, the Fed was also hiking up rates throughout 2017 and 2018. That did not prevent Bitcoin to reach $20K in December 2017.

The takeaway

In summary, this means that the Fed rate hikes do seem to have a smaller effect on Bitcoin price than is often assumed.

It seems that other factors are at play here.

Let’s take a closer look at what else I found out.

🗡️Impact of Crypto Bankruptcies and Hacks on Bitcoin Price

For many, the numerous hacks and bankruptcies in the crypto sector were another driving reason for Bitcoin’s poor performance over the past year.

For example, the total number of hacks increased from 236 in 2021 to 303 in 2022. However, much less money was lost than in 2021.

But again it turns out that these events are not clearly related to the price performance of Bitcoin. For example, in March 2020 the Ronin bridge hack happened which caused losses of over $600 million. Nonetheless, March closed positively.

Do total lost amounts and amounts of funds lost due to bankruptcies play any role? I think the effect is limited.

The bankruptcies of 3AC ($3,5bn) and FTX ($9bn + $650 million hacked) did clearly cause price drops. But when zooming out to look at the month when they happened, the effect was not so significant (here I define a drop of 20% or more as significant).

The takeaway

While there seems to be small correlation between bankruptcies in the crypto sector and Bitcoin price drops, I couldn't see any correlations between hacks and Bitcoin price.

That is likely because neither bankruptcies nor hacks change the decentralization and security characteristics of the Bitcoin blockchain. As a result, it is very unlikely that they will have a long-term negative effect on the price.

🔮If it Wasn’t the Fed or FTX, Then What Caused the Price to Drop?

Let’s be clear that the Fed’s actions and the collapses of various crypto platforms certainly had an impact on Bitcoin’s price.

However, I see the simple fact that Bitcoin and thus crypto went into a bear cycle at the end of 2021 as the main reason.

In a bear market, all negative events are amplified, just as in a bull market, all positive news is enough to pump the price higher.

We are talking about a tough bear market. But in historical comparison, with a temporary decline of 73% from the ATH, it wasn’t the worst — despite the Fed and despite FTX & Co.

And it looks like we’ve already bottomed out.

Conclusion

I believe that Bitcoin’s 4-year cycle is still intact. The worst of the bear market seems to be behind us and we are slowly entering a new cycle. While the current pump looks promising I think that we should expect more sideways action in the coming months until the full-blown bull market returns.

All of this means that other factors such as rate hikes only have temporary effects on Bitcoin price. When in doubt, zoom out and focus on the long term. Many things can and will affect BTC price negatively. But as long as the fundamentals of Bitcoin do not change, I expect to see big returns in the coming years.