The U.S. interest rate, set by the Federal Reserve (Fed), has a profound impact on capital flows globally, including the cryptocurrency market. Below are the main impacts:
1. Impact on investment capital
Interest rates increase:
When U.S. interest rates rise, safe assets like treasury bonds become more attractive. This causes capital flows to tend to withdraw from high-risk assets like technology stocks and cryptocurrencies, reducing liquidity in these markets.
Higher borrowing costs also reduce access to cheap capital, making it difficult for cryptocurrency projects and startups that need funding.
Interest rates decrease**:
Low interest rates encourage capital to flow into higher-risk assets like cryptocurrencies, where expected returns are greater. This was once a driving factor for the cryptocurrency market boom in 2020-2021.
2. Impact on the USD
Stronger USD: High interest rates often push the value of the USD up, putting downward pressure on Bitcoin and other cryptocurrencies, as they are typically priced in USD.
Weaker USD: When interest rates decrease, the value of the USD weakens, and investors turn to Bitcoin and digital assets as a hedge against inflation and currency devaluation.
3. Market sentiment
Interest rate policies affect investor sentiment. When the Fed tightens monetary policy (interest rates increase), the market tends to become cautious, leading to a decrease in speculative trading, especially in the already volatile cryptocurrency market.
4. Current trends
Currently (December 2024), the Fed is maintaining high interest rates to control inflation. This continues to put pressure on the cryptocurrency market, limiting capital inflows into this sector, although major events like the Bitcoin Halving 2024 may attract new attention.
In the current context, investors need to closely monitor the Fed's decisions to adjust their investment strategies accordingly.