Three major central banks are preparing to tighten monetary policy simultaneously for the first time since 2006. The European Central Bank has already increased its deposit rate to 2.50 percent. The Federal Reserve and the Bank of Japan are expected to announce their respective policy decisions later this week.
Historical data from 2006 shows that simultaneous rate hikes caused significant declines in risk assets. At that time, the S&P 500 dropped 7.7 percent, while Japanese TOPIX fell 16.5 percent and emerging markets lost over 20 percent. Investors sold off speculative bets as borrowing costs increased.
Bitcoin faces a similar test as market liquidity tightens. In August 2024, a rate hike by the Bank of Japan led to a 12 percent drop in the TOPIX index and a 20 percent decline in Bitcoin. Japanese stocks have recently fallen 8.4 percent over the past month, signaling a potential squeeze.
Despite these pressures, Bitcoin has shown resilience, maintaining a price above $79 000. The asset previously experienced a 33 percent decline over the past year, trading at $77 871. This suggests that some de-rating occurred before the current tightening cycle began.
US spot Bitcoin ETFs are acting as a potential buffer against market volatility. In August, these funds recorded inflows of $3.52 billion, reversing a trend of $5.30 billion in outflows observed over the preceding seven months. Continued institutional buying may mitigate the impact of central bank decisions.
