Last week, news of the Federal Reserve's rate hike expectations heating up caused Bitcoin to plunge from 48,000 to 45,000, while the S&P 500 fell 2.3% during the same period. This phenomenon of "synchronous decline" has sparked much discussion in the comment sections: why does the crypto market always seem to be tied to the trends of traditional finance?

Actually, the answer to this question isn't that complicated. The crypto market is no longer an independent territory; its linkage with traditional finance is much closer than most people imagine.

A set of data makes this clear. Since the Fed began its rate hike cycle in 2022, the correlation coefficient between Bitcoin and the S&P 500 has reached 0.68 (data from CoinGecko and Bloomberg joint statistics). What does this mean? Simply put, there is nearly a 70% probability that they will move in the same direction. This is not a coincidence but is supported by deep logical reasons.

The core driving force is "liquidity." What happens when the Federal Reserve raises interest rates? The dollar appreciates, and Treasury yields rise. At this point, institutional investors will make a rational choice: withdraw funds from high-risk assets like stocks and shift into risk-free yield products such as government bonds. As a risk asset, the crypto market, which is among the riskiest, naturally cannot escape being sold off. From a capital perspective, Bitcoin and tech stocks essentially belong to the same category of risk assets, just packaged differently. When risk appetite declines, both will suffer.

The March 2023 Silicon Valley Bank collapse is a good example. At that time, traditional financial markets fell into panic, with the S&P 500 dropping 1.8% in a single day—no small feat. But on the same day, Bitcoin's decline was 8%, indicating that crypto market volatility was even more intense in the face of risk events. Why is this? It's not because the fundamentals of the crypto market itself are problematic, but because the risk sentiment in traditional finance spreads like an infectious disease. To compensate for losses caused by the stock market, institutions will prioritize liquidating highly liquid crypto assets to raise cash.

Conversely, when risk sentiment improves and the Fed signals a rate cut, institutions will reallocate funds back into risk assets, and the crypto market often rebounds. This linkage, from a certain perspective, confirms a reality: the crypto market has become an indispensable part of global capital allocation. Its price fluctuations are increasingly influenced by macro liquidity environments, not just internal events within the crypto space.