The impact of monetary policy on the cryptocurrency market

Abstract

This paper examines the impact of Federal Reserve (Fed) monetary policy announcements on the cryptocurrency market, focusing on immediate market reactions. Using a sample of 57 monetary policy announcements from January 2018 to September 2024, the analysis distinguishes between expected and unexpected rate changes and isolates the unexpected component, constructing a measure of “surprise” rate changes with Federal funds futures data. The results indicate that unexpected policy changes exert a moderate negative effect on cryptocurrency returns, whereas expected changes have a small impact. The findings contribute to the literature by extending event-study methodologies to cryptocurrencies and, within the cryptocurrency literature, by focusing on the broad cryptocurrency market to offer a comprehensive perspective on market-level effects.