OKX Research Institute: Bitcoin Falls Below $30,000! The Crypto Space Faces Two Possible Scenarios Since the May Interest Rate Hike
Author: Zhao Wei, Senior Researcher at OKX Research Institute
According to OKX market data, at around 8:00 AM Beijing time on May 10th, Bitcoin briefly fell below the critical $30,000 level, dropping to a low of $29,735, with a decline of over 10% within 24 hours. This marks the first time since Bitcoin peaked at $69,000 on November 10th last year that it has fallen below $30,000. Half an hour later, Bitcoin's price rebounded above $30,000. At 10:00 AM, Bitcoin was trading at $30,891.
Bitcoin Price Trend
What was the direct trigger for Bitcoin's drop below $30,000 this time? One prevailing view suggests it was:
At around 2:00 AM today, the Bitcoin address of Luna Foundation Guard (LFG) transferred out 42,530.82 Bitcoin, worth approximately $1.319 billion at the time. This sparked massive panic selling among users. Additionally, UST, the stablecoin issued by Luna, has recently broken its $1 peg and continues to decline in price. As the largest USD algorithmic stablecoin with a total market cap of $18 billion, UST's crash and the issuer's seemingly market-manipulating operations have dragged down the already jittery crypto market.
Of course, why has the crypto space been so fragile lately? This points to the root cause of this crash: U.S. interest rate hikes.
On May 4th, the U.S. Federal Reserve announced a 50 basis point interest rate hike, raising the federal funds rate target range to between 0.75% and 1%. At the same time, the Fed announced it would begin reducing its nearly $9 trillion balance sheet starting June 1st, to complement the rate hike and curb soaring inflation.
Once the news broke, U.S. stocks and the crypto market briefly rose slightly, as panic sentiment had been largely digested in advance. During the meeting, Fed Chairman Jerome Powell ruled out the possibility of a 75 basis point rate hike, dispelling market concerns about overly aggressive tightening.
However, shortly after, the market trend reversed sharply downward, with both U.S. stocks and the crypto market closing significantly lower. After all, this marks the first time since 2000 that the rate hike has reached 50 basis points, signaling the Fed's urgency in tightening monetary policy, dealing a devastating blow to the fundamental backdrop and market sentiment.
On the flip side, U.S. Treasury yields surged, and the U.S. dollar index hit a nearly 20-year high, demonstrating the positive effects of rate hikes. It can be said that the rate hike is the Fed's bold move to restore dollar credibility during a critical time of accelerating U.S. inflation and declining dollar confidence.
Looking at the market specifically, panic selling has already materialized into a grim picture. All three major U.S. stock indices gave back gains from previous sessions, with the Dow Jones index plummeting nearly 1,400 points at one point during trading.
1. Economic Recession Coinciding with High Inflation Rates is Rare, Adding Greater Uncertainty to Rate Hikes
As early as late April, investment bank Goldman Sachs published a report stating that it expects a 35% probability of U.S. economic recession over the next two years.
The report analysis shows that the main challenge facing the U.S. is to narrow the gap between job openings and the number of workers, and to reduce employment opportunities through tighter financial policies without significantly raising the unemployment rate, thereby slowing wage growth to a pace consistent with the 2% inflation target.
However, what troubles both the Fed and Wall Street is the coexistence of a broad economic recession and stubbornly high inflation in the U.S.—something extremely rare in history. Looking at concrete data from both perspectives, this contrast appears even more stark:
First, at the beginning of this month, The Wall Street Journal surveyed 65 business, academic, and financial professionals, with respondents on average expecting a 28% probability of U.S. economic recession in the coming year—higher than both the 18% at the beginning of the year and the 13% from a year ago. In other words, elite consensus has further lowered expectations for the U.S. economy, with pessimism growing, and mainstream views have reached further agreement on the likelihood of U.S. economic recession.
Wall Street Journal survey data of 65 financial elites
Second, according to data released by the U.S. Department of Labor on April 12th, U.S. CPI rose 8.5% year-over-year in March, marking the highest level since December 1981. This figure exceeded the Dow Jones forecast of 8.4%, meaning the U.S. is experiencing a level of price increases not seen in the past 40 years.
U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) both reach historical peaks
Comparing the two directly reveals the predicament of inflation during a recessionary cycle.
As we all know, high inflation accompanies rapid economic growth, while conversely, significant deflation corresponds to obvious economic recession. Therefore, this Fed rate hike faces a situation potentially more complex than previous hiking cycles, as the twin black swan events of the COVID-19 pandemic and the Russia-Ukraine war have brought enormous uncertainty to the global economy. Of course, the root cause of all this is the massive money printing by the U.S. dollar after the pandemic. So rate hikes are inevitable, and the subsequent macroeconomic and financial market trends are even more unpredictable.
2. Hawks and Doves Have Widely Divergent Views on the Intensity of Rate Hikes; Future Fed Monetary Policy Remains Uncertain
The sword hangs overhead, caught between a rock and a hard place—contracting credit and tightly controlling liquidity has become the "least bad" option. After all, everyone in the U.S. is concerned about whether a recession can be avoided.
City Index analysis suggests that the S&P 500 recorded its strongest gain since 2020 on the day the Fed announced its latest interest rate decision, which in itself was somewhat unusual. It can be said that the decline seen on May 5th was the expected repricing. "Ultimately, risks still exist, inflation remains high, and the Fed will continue to take aggressive action."
Of course, those who believe rate hikes can cure the U.S. economy's ailments seem unperturbed by the pain from the crash. Previously, hawkish representative and St. Louis Fed President James Bullard boldly stated: "Raise interest rates to around 3.5% by year-end."
What's more, regarding the "economic recession theory" proposed by investment banks represented by Goldman Sachs and the economics community, "Hawk King" Bullard chose to ignore it: "It's too early to talk about recession; rate hikes have only happened once." Bullard expects that under a sustained tight monetary policy, the U.S. economy will grow at a healthy pace above long-term trends in 2022 and 2023, with the unemployment rate dropping below 3%.
Whether it is gradual, moderate small-scale rate hikes or aggressive, dramatic large-scale rate hikes, both have dealt direct and swift shocks to the relatively fragile crypto market.
In the third week of April, Bitcoin fell below the $40,000 mark for the first time in nearly a month and continued to decline since.
Despite the appearance of major news during this period, such as Russia announcing that "natural gas and other energy sources will be settled in Bitcoin," market reactions showed it only delayed the downward trend.
From Bitcoin's all-time high of $69,000 to consecutive breaks below the $50,000 and $40,000 marks, all are closely tied to the Fed's monetary tightening policy.
As one of the world's major value anchors, Bitcoin remains highly dependent on U.S. dollar stability and the global financial stability led by the U.S. financial system. The Fed's policy direction is the decisive force affecting Bitcoin's price.
Photo from the Fed's FOMC meeting
However, the Fed's policy-making is not entirely driven by financial market performance, capital returns, retail investor profits/losses, or public sentiment. U.S. stock movements are just one of its reference bases, and the crypto space is even less significant. Given the obvious signs of U.S. economic weakness, future rate hikes will inevitably proceed along the timeline. Moreover, we have already entered a historical tightening cycle. Yet, from the Fed's current stance, the option of rate hikes seems to still have some room for flexibility and maneuvering. After all, Powell has already stated: "We have a good opportunity for a soft landing."
3. Analyzing from Two Hypotheses: What Impact Will This Rate Hike Cycle Have on the Crypto Market Going Forward?
Based on the above analysis, combined with specific trends, let us make the following two hypothetical analyses regarding the future direction of the crypto market. For reference only; this does not constitute any form of investment advice.
Possible Scenario 1: The Fed continues to adopt a hawkish stance after the May meeting, with full-year rate hikes exceeding 3% to curb high inflation—
Specific impacts may include:
1) Funds continue to flow out significantly, thereby affecting asset prices in the financial sector;
2) U.S. CPI declines to levels seen in the first half of 2021 or lower, with the inflation problem easing;
3) The U.S. dollar continues to appreciate, with dollar credibility being restored to some extent;
4) Bitcoin will most likely be forced to absorb the "consequences of dollar flooding" since 2021 or even earlier; mainstream outlook on its bearish expectations may deepen;
5) Trigger rate hikes by countries worldwide, meaning major countries and financial institutions will attempt to maintain their local currency's stable position and use more aggressive measures to shore up the existing international financial system.
For example, after May 5th, the European Central Bank, the Bank of England, and central banks of developed countries such as Canada and New Zealand successively confirmed their upcoming rate hike plans.
6) In the long run, Bitcoin will gain more independent value positioning, and the crypto market may usher in a new period of stable development stimulated by this. Because when mainstream digital asset prices hit bottom, they will attract a new wave of high-caliber institutions and retail investors to buy the dip. Then, when the U.S. dollar enters a new easing cycle, they will emerge with substantial returns from value investing. Of course, during this period, Bitcoin's price may experience some volatility influenced by major currencies such as the U.S. dollar, euro, and ruble.
Mainstream media coverage: Central African Republic adopts Bitcoin as legal tender
Possible Scenario 2: To avoid the risk of U.S. economic recession, the Fed's policies result in full-year rate hikes of less than 2%—
Specific impacts may include:
1) The shadow of financial risk may loom over the crypto market, but to some extent, it could be short-term bullish for Bitcoin, as the actual headwinds fall short of the worst expectations;
2) The pace of dollar inflation eases, but for a long time, it still does not help purchasing power improve. The crypto market may exist in a state of high structural risk coexisting with high value for some time to come; prolonged wide-range oscillations may become the norm;
3) Of course, if the U.S., with arrows already on the bowstring, ultimately chooses not to fire, it will naturally trigger a series of chain reactions until dollar credibility collapses. Although this qualitative change requires a very long time to develop, the U.S.'s consistent beggar-thy-neighbor practices have nearly set the stage for quantitative preparation. The most direct and important change lies in:
Major sovereign credit currencies will not passively wait to transfer risk. Major economies' trust in and adoption of the U.S. dollar will gradually weaken, thereby directly impacting the post-World War II dollar-dominated international financial system. Russia's unilateral announcement of decoupling from the dollar is a prelude to this major shift, only accelerated by the war.
4) Under the domino effect, uncertainty in global financial markets surges sharply, with intensity potentially rivaling even the most aggressive rate hikes, because the downward trajectory brought by the latter is entirely predictable. In this scenario, an inactive Fed is essentially hinting that a large amount of risk-averse capital will flow into the crypto space. After all, Bitcoin still carries risk asset characteristics. This trait has only been diluted due to massive dollar printing and its strong correlation with U.S. stocks. However, when the conditions for this shift begin to失效 (cease to apply), Bitcoin's original safe-haven attributes may well be reinforced once more. At that point, the price fluctuations of crypto assets will become even more unpredictable, and it will also become more difficult for investors to profit from short-term operations. Therefore, the ability to judge and assess risks, timely adjust operating strategies, and even stabilize personal emotional volatility becomes even more important.
Map of the situation at the beginning of the Russia-Ukraine war
From the performance of Bitcoin and other digital assets during the Russia-Ukraine war period, we can see that the crypto space has fully integrated with global financial markets, just in a particularly unique form. An increasing number of mainstream country central banks are beginning to formally recognize blockchain technology and the status of crypto assets. Developing countries in Asia, Africa, and Latin America are also accelerating the process of making Bitcoin legal tender. These phenomena have already started frequently appearing in headlines of international mainstream financial media.
Looking back at the economic cycles over the past decade or so since Bitcoin's birth, we can easily find that whenever it climbs out of a trough, Bitcoin's total market cap and resilience reach new heights. Therefore, regardless of the intensity, magnitude, or method of this U.S. rate hike, at this moment, being bullish on the crypto space, choosing Bitcoin, investing cautiously, and deeply enhancing one's understanding are all wise moves to navigate through bull and bear cycles.
Disclaimer
This article may contain product-related content not applicable to your region. This article is only intended to provide general information and does not accept responsibility for any factual errors or omissions. This article represents only the author's personal views and does not constitute the views of OKX. This article is not intended to provide any advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to purchase, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holdings in digital assets (including stablecoins) involve high risk and may fluctuate significantly, or even become worthless. You should carefully consider whether trading or holding digital assets is appropriate for you based on your financial situation. For questions about your specific circumstances, please consult your legal/tax/investment professional. The information contained in this article (including market data and statistics, if any) is provided for general reference only. Although we have taken all reasonable precautions in preparing this data and these charts, we do not accept any responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, and excerpts of 100 words or less may be used, provided that such use is non-commercial in nature. Any reproduction or distribution of the full article must prominently state: "This article is copyrighted © 2025 OKX, used with permission." Permitted excerpts must cite the article name and include attribution, for example "Article name, [author name (if applicable)], © 2025 OKX." Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works and other uses of this article are not permitted.
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