Fed Rate Pause and Dollar Decline: Why Bitcoin Is Lagging Behind Gold

Fed Rate Pause and Dollar Decline: Why Bitcoin Is Lagging Behind Gold

The recent Federal Reserve meeting has revealed a remarkable market dynamic: while gold and silver reach new highs and benefit from a weak dollar, Bitcoin shows relative weakness. This development raises fundamental questions about Bitcoin's role as a macroeconomic hedge instrument—particularly in an environment that theoretically should be ideal for digital stores of value. The contrast between precious metals and Bitcoin could signal that the market currently prefers traditional safe-haven assets, while regulatory uncertainties and political turbulence weigh on the crypto market.

The Facts

The Federal Reserve maintained its benchmark interest rate in the range of 3.5 to 3.75 percent at its first meeting of 2026, as expected ^[1][2][3]. This decision had been priced in by the market with nearly one hundred percent probability ^[3]. The Federal Open Market Committee (FOMC) voted ten to two to maintain the current rate level, with Fed Governors Christopher Waller and Stephen Miran advocating for a 0.25 percentage point cut ^[2][3].

Fed Chair Jerome Powell signaled during the press conference that there was "no urgent reason to cut rates further, as the US economy is holding up well" ^[2]. He emphasized: "I think—and many of my colleagues think—that it's difficult to look at the incoming data and say that policy is currently significantly restrictive" ^[2]. In the official statement, the Fed described economic growth as "solid"—an upgrade from the previous wording of "moderate" ^[2]. Inflation remains at 2.7 percent, still above the central bank's target ^[2][3].

Market reaction to the rate decision was mixed. Bitcoin traded weaker after the announcement and fell to a low of $87,550 overnight ^[2]. On Thursday morning, Bitcoin was trading at around $88,000, down approximately 1.4 percent over 24 hours ^[1]. The total market capitalization of the crypto market declined by around 2.5 percent to just under $3.0 trillion ^[1]. Ethereum lost nearly 2.0 percent and was trading at around $2,950 ^[1].

Particularly striking was the development in the foreign exchange market: the US Dollar Index (DXY) fell to around 96 points, marking its lowest level in four years ^[1]. In parallel, the euro rose to nearly $1.20 ^[1]. The dollar weakness received tailwinds from comments by US President Donald Trump, who "publicly showed no concern about the currency decline" ^[1]. The Fed, however, avoided any comment on the dollar's development ^[1].

In direct contrast to Bitcoin, gold and silver continued their rally. Gold gained around 2.8 percent and reached a new all-time high above $5,200 per ounce ^[1]. Silver rose approximately 3.2 percent to an all-time high of $120 per ounce ^[1]. Market observers speak of "increasing demand for hedging instruments in an environment of political and monetary policy uncertainty" ^[1].

The meeting took place under special political circumstances. Investigations by the US Justice Department against Powell have been ongoing since mid-January, which he characterized as an attempt by the government to "pressure the central bank to implement rate cuts" ^[2]. Trump, a known advocate of looser monetary policy, had repeatedly criticized Powell for not cutting rates sufficiently ^[2]. Powell's term officially ends in May 2026, and on the betting platform Polymarket, BlackRock's Rick Rieder is favored with over 35 percent to succeed him ^[2][3].

Analysis & Context

The diverging performance between gold and Bitcoin in this macroeconomic environment is remarkable and sheds light on the different market perception of both assets. Theoretically, a weak dollar combined with political uncertainty and doubts about central bank independence should create an ideal environment for Bitcoin as a non-governmental store of value. Reality shows, however, that institutional and traditional investors continue to prefer proven safe-haven assets like gold during periods of uncertainty.

This development can be explained by several factors. First, gold is established as a hedging instrument over millennia and enjoys the trust of conservative investors, especially during times of political turbulence. Second, Bitcoin's relative weakness could be attributable to regulatory uncertainties, although the planned White House discussions on stablecoin legislation ^[1] could provide positive momentum in the medium term. Third, the elevated open interest in Bitcoin futures of $59.8 billion ^[1] shows high positioning amid sideways-trending prices—a classic sign of market uncertainty.

Historically, Bitcoin has benefited from a weak dollar during previous phases of monetary policy uncertainty, though often with a time lag. The current correlation weakness could represent a temporary decoupling while the market waits for clearer signals—whether in the form of concrete regulatory progress or an intensification of the macroeconomic situation. The fact that market participants don't expect the next rate cut until June ^[2] points to a prolonged high-rate environment that tends to weigh on riskier assets.

The political dimension should not be underestimated. Powell's steadfast adherence to a data-dependent approach despite political pressure strengthens the Fed's credibility but simultaneously creates uncertainty about the future direction of monetary policy under new leadership. Should a Trump-aligned candidate like Christopher Waller assume the succession, this could lead to looser monetary policy in the medium term—a scenario that has historically favored Bitcoin.

Conclusion

• Bitcoin currently shows relative weakness compared to traditional safe-haven assets like gold, even though the macroeconomic environment with a dollar at a four-year low should theoretically be favorable for digital stores of value—a sign of ongoing uncertainty about Bitcoin's role in institutional investor portfolios.

• The Fed is sticking to its restrictive course and making further rate cuts dependent on declining inflation, which prolongs the high-rate environment and weighs on riskier assets like cryptocurrencies in the short term—the market doesn't expect easing until mid-2026.

• The political turbulence surrounding Fed Chair Powell and the upcoming leadership change in May create additional uncertainty but could lead to a more Bitcoin-friendly monetary policy in the medium term if a candidate focused on rate cuts assumes the succession.

• Planned White House discussions on stablecoin regulation and potential regulatory progress could provide positive momentum to the US crypto market in the coming weeks and end the current phase of weakness.

• The gap of over 40 percent from the all-time high of $126,300 illustrates that Bitcoin needs new catalytic impulses—whether through concrete regulatory progress, monetary policy easing, or an intensification of the currency crisis that drives capital into non-governmental assets.