Bitcoin Volatility Surges 3.6% Amid US Policy Uncertainty

Bitcoin (BTC) volatility surged to 3.6% on March 19, marking the highest level since August 2024. This spike in volatility is indicative of the heightened market uncertainty stemming from structural unknowns within the US economy. According to Uldis Tearudklans, chief revenue officer at a UK-based cryptocurrency exchange, the policy landscape is becoming increasingly complex with the introduction of the Department of Government Efficiency, an initiative led by Elon Musk. While this initiative aims to reduce government spending and has bipartisan support, its broader economic implications, particularly on employment and consumer demand, remain uncertain.

The Department of Government Efficiency has reported an estimated savings of $115 billion for the US government as of March 19. These savings are attributed to workforce reductions, asset sales, grant cancellations, and regulatory savings. Tearudklans noted that if fiscal tightening continues alongside stable or gradually declining interest rates, it could create a mismatch in policy direction. This mismatch could limit the intended stimulative effect of future rate cuts, potentially leading to a liquidity contraction.

On March 19, the Federal Open Market Committee announced that it would maintain interest rates at their current level, while leaving open the possibility for two more rate cuts in 2025. This decision comes amidst a backdrop of elevated Bitcoin volatility, which has been a prominent feature since the inauguration of US President Donald Trump in January 2025. Since reaching a high of $109,590 on January 20, the price of Bitcoin experienced a 30% retracement to a low of $77,041 during the week of March 9-15. This price movement reflects increased selling pressure from short-term buyers who are currently at a loss, although there are signs of returning demand. At the time of writing, the cryptocurrency price had bounced back to around $84,000.

Tearudklans explained that the elevated volatility suggests that traders are anticipating divergent outcomes, including the possibility of fiscal contraction alongside stable or easing interest rates. This scenario creates a complex feedback loop where reduced government spending could limit economic growth, potentially forcing the Federal Reserve to maintain a cautious stance or delay future rate cuts. Additionally, Bitcoin's price action may be influenced by policy misalignment, as the Fed's rate decision offers short-term clarity, but the broader fiscal outlook introduces the risk of asymmetric market responses. This reinforces Bitcoin's sensitivity to macroeconomic cycles and liquidity shifts.

The volatility in Bitcoin's price comes as President Trump has made overtures to the crypto community. On March 7, he signed an executive order to create a strategic Bitcoin reserve and digital asset stockpile in the United States. On March 20, he spoke at the 2025 Digital Asset Summit, declaring that the US aims to become a "Bitcoin superpower." However, Trump's discussions on tariffs and rising geopolitical tensions are affecting the broader financial markets, including the crypto sector.