Hikes Are Back. Bitcoin Didn't Flinch.

The Federal Reserve has raised rates for the first time since 2023, lifting the federal funds range by 25 bps to 3.75% to 4.00%. The vote was unanimous, and the Fed has signalled more could follow before year end. That will not sit well with President Trump, who appointed Kevin Warsh expecting cuts. But with national debt now above US$40 trillion and inflation climbing, Warsh and the committee had little room to move.

Higher rates are meant to hurt risk-on and non-yield bearing assets. Overnight, most of them behaved accordingly. The S&P 500 slipped again, having its lowest close since early August. Precious metals followed. Gold continues to hand back the gains it made in early August, and silver is sliding with it.

Bitcoin did not follow the script.

Bitcoin Holds Its Ground

Despite a hawkish decision and Warsh stressing that inflation is still too high, Bitcoin finished the day green. Much of the selling had already happened. The day before, the CLARITY Act failed to advance in the Senate, knocking Bitcoin roughly 4% to around US$76,000 and flushing out weaker hands. By the time the Fed delivered, there were few sellers left to push price lower. Buyers stepped in and took the discount.

That matters. Bitcoin’s two most common macro correlations, equities and gold, both fell on a major macro event. Bitcoin held. Had this decision landed earlier in the year, while Bitcoin was in a clear downtrend, it would have been reasonable to expect it to drag price lower. One day does not make a trend, but relative strength in the face of tightening is exactly the behaviour we want to see.

On The Radar

Bank of Japan, tomorrow. The BoJ is widely expected to lift its policy rate by another 25 bps to 1.25%, the highest in more than three decades. Japan has long been the world’s cheap credit factory. Every hike makes borrowing yen more expensive and squeezes the carry trade, where investors borrow cheaply in yen to buy higher-yielding assets elsewhere. When that trade unwinds quickly, as it did in August 2024, risk assets including Bitcoin can get caught in the selling. The hike itself is largely priced in, so Governor Ueda’s guidance on what comes next is the key.

The US 10-year yield. Bond yields are directly tied to interest rates and attract liquidity from institutions and countries alike. The US 10-year yield is the benchmark for the global cost of borrowing, the rate against which almost every other asset is priced. It is sitting around 5%, its highest level since 2007, and a new hiking cycle gives it reason to push higher.

Going back to the 1960s, the 10-year yield has risen by an average of 114 bps in the first 12 months of a hiking cycle. Repeat that from here and the yield would sit near 6%, a level not seen since 2000.

What does that mean for non-yield bearing assets like Bitcoin and gold? It raises the bar. When investors can earn around 6% on government debt with little credit risk, the opportunity cost of holding an asset that pays nothing goes up, and some liquidity will be drawn away.

There is a counter argument, and we have made it many times. That 6% is paid in a currency that keeps losing purchasing power, issued by a government carrying more than US$40 trillion in debt, and trust in both continues to erode. Higher yields also mean higher interest costs on that debt, which feeds the very problem that makes scarce assets attractive. But in the short term, a 6% yield will look appealing to many investors, and that is a headwind worth respecting.

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Stormrake Spotlight: Pax Gold (PAXG) ($4,286)

Source: https://www.tradingview.com/x/J4nRX8CR/

As noted above, PAXG struggled after the rate hike. It has now failed to hold the must-hold level we flagged previously, with several closes below it. The bears have taken back momentum, structure and trend, and a bearish head and shoulders pattern has also formed. This is not good for the bulls in the near term. Expect the bears to try to erase all of the gains made since the start of August, with a potential revisit of the $4,100 to $4,000 zone.

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BTC/USD Key Levels and Price Action:

Source: https://www.tradingview.com/x/qYBshNsq/

Bitcoin is looking to challenge the bears’ control after bouncing from the $74.9k low that followed the CLARITY Act failure. Immediate resistance sits at the 55 exponential moving average (green line). If the bulls reclaim it, that would be a likely sign a short-term low is in, opening the door for another push higher. Until then, the bears remain in control of the trend.

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*All prices are denominated in USD unless stated otherwise*

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Written by Alexandar Artis