The market expects the Fed to slow down the pace of interest rate hikes, and Bitcoin briefly hits $21,000

Bitcoin surged above $21,000 for the first time since mid-September after the Bank of Canada raised interest rates less than expected, a move that economists said could signal a reversal in the central bank’s tightening monetary policy stance.

Shortly after the Bank of Canada's news was released, the U.S. Census Bureau reported that new home sales fell 10.9% in September as buyers continued to withdraw as interest rates rose sharply. As an important part of the economy, weak housing data may push the Federal Reserve to follow the Bank of Canada in slowing the pace of rate hikes, which is bullish news for the crypto market.

Previously, the market generally expected the Bank of Canada to increase its benchmark interest rate by 75 basis points (after a 75 basis point increase in September and a 100 basis point increase in July), but the central bank only increased by 50 basis points and hinted at some concerns about economic growth in the accompanying statement: "Future rate increases will be influenced by our assessment of how tighter monetary policy can slow demand and how supply challenges can be addressed."

Bitpush terminal data shows that Bitcoin and Ethereum have risen by 3.7% and 7% respectively in the past 24 hours. ETH has exceeded $1,500 for the first time since the merger on September 15.

Investor confidence in the crypto market may be rising as they predict that the Federal Reserve may make a smaller rate hike in the next two months. According to data from MacroMicro, a company that estimates interest rate expectations, investors believe that the rate hike may be smaller than previously expected in the near future.

Currently, Bitcoin and the S&P 500 have a high correlation coefficient. The S&P 500 provides an overall overview of the economy. Therefore, if interest rates slow and the economy grows, Bitcoin could continue to rise if there is a similar turnaround in the stock market. The better the macro climate, the more favorable it is for Bitcoin to rebound.

Hedge fund manager Mark Yusko is also optimistic about the trend of Bitcoin. In a recent interview with Cointelegraph, he said that the halving will be the main catalyst for a new round of rebound as early as the second quarter of 2023.

The halving mechanism refers to reducing Bitcoin's block reward by half every four years, and the next halving is expected to occur in early 2024.

“Usually the market anticipates about nine months,” Yusko said. According to the hedge fund manager, the halving will push Bitcoin to $100,000 and possibly beyond “according to the laws of mathematics,” he said: “If the block reward is halved from 6.25 to 3.125, then the price must double for miners to continue to make money.”

Yusko believes that digital assets will ultimately prove to be uncorrelated with the stock market: “Traditional assets are driven by economic growth, Fed policy, and inflation. Crypto is driven by the technology itself, adoption by millennials.”

However, a positive GDP report could encourage the Fed to continue raising interest rates. Economists estimate that U.S. gross domestic product (GDP) grew at a seasonally adjusted annual rate of 2% in the third quarter, according to FactSet. This broke two consecutive quarters of contraction, with GDP shrinking 1.6% in the first quarter and 0.6% in the second quarter.

The Federal Reserve has always relied on data to make decisions. Scott MacDonald, chief economist at Smith's Research & Gradings, told Coindesk: "I think the Fed will continue to raise interest rates until the inflation demon is eliminated. I expect the growth rate to be around 2.5%, which is not enough to convince the Fed to adjust its policy."