The impact of the Fed’s interest rate hikes on Bitcoin
As the Federal Reserve raises interest rates, many investors in the crypto market cannot sit still. They are very worried about the impact of the Federal Reserve's interest rate hikes on digital currencies, because the Federal Reserve's start to raise interest rates is likely to have a certain impact on Bitcoin. Because the Federal Reserve provided pandemic-related liquidity, Bitcoin was able to
As the Federal Reserve raises interest rates, many investors in the crypto market cannot sit still. They are very worried about the impact of the Federal Reserve's interest rate hikes on digital currencies, because the Federal Reserve's start to raise interest rates is likely to have a certain impact on Bitcoin. Because the Federal Reserve provided pandemic-related liquidity, Bitcoin was able to have a historic surge last year. Now that the Federal Reserve is about to tighten monetary policy, investors also need to reassess risks, and everyone also needs to consider Russia. The consequences of the war in Ukraine. So what impact will the Fed’s interest rate hike have on Bitcoin? Let the editor of the currency circle take you through an article to understand the impact of the Federal Reserve's interest rate hike on Bitcoin.
Understand the impact of the Federal Reserve’s interest rate hike on Bitcoin in one article
The U.S. economy has performed strongly in the past two years, with inflation stable around the 2% level, and there is no sign that inflation expectations will change. The overall economic performance does not pose a high risk of economic overheating. If economic growth remains strong, Fed Chairman Jerome Powell said gradual interest rate increases would be appropriate. Since the start of the interest rate hike cycle in December 2015, the Federal Reserve has raised interest rates eight times so far, and there seems to be a trend of increasing the pace of interest rate hikes.
Some analysts believe that digital currencies have always existed in the U.S. economy with low interest rates. When a sudden high interest rate environment arrives, the digital currency market will lose more funds. Because of the increase in interest rates, citizens are more inclined to deposit their money in banks rather than invest it. The crypto market that lacks funds will also cause blockchain companies to fall into a deadlock of shortage of capital chains due to lack of liquidity. This is a big blow to the entire cryptocurrency market.
Judging from the data analysis results, before and after the Federal Reserve has raised interest rates since 2017, judging from the market trend of Bitcoin, there is no statistical correlation between interest rate hikes and Bitcoin price trends. Even from the descriptive analysis, No consistent pattern can be drawn.
Blue represents the market trend of Bitcoin one month before the interest rate hike was announced, orange represents the market trend of Bitcoin one month after the interest rate hike was announced, and gray represents the market trend at other times. As can be seen from the chart above, generally speaking, the price of Bitcoin has gone up and down before and after interest rate hikes. However, before the bull market in January 2018, the news of possible interest rate hikes would cause the price of Bitcoin to rise. After the interest rate hike was announced, the price of Bitcoin would fall.
The impact of the Fed's interest rate hikes
Nowadays, every U.S. dollar interest rate hike is expected by people. Even if this interest rate hike comes true, the U.S. dollar will most likely not appreciate greatly, and the cryptocurrency market will not suffer a huge impact. Hurt because the "good" news is exhausted long before the rate hike.
What people are staring at is the result of the interest rate hike. If the Fed does not raise interest rates at this meeting and the result is unexpected, then on the contrary, the previously expected appreciation of the US dollar and the return of funds may even be reversed.
The main reason for the "irrelevance" between the crypto market and the US dollar interest rate is considered to be USDT. Because stablecoins exist in the cryptocurrency secondary trading market, stablecoins anchored 1:1 with the U.S. dollar dilute the impact of U.S. dollar interest rate hikes on the cryptocurrency market to a certain extent.
Since 2008, gold prices have no longer moved in sync with U.S. dollar interest rates. At the same time, the European debt crisis has made people worried. People's confidence in the U.S. government has begun to waver, and there has been distrust in the centralized financial system. Even if the Federal Reserve keeps raising interest rates, it cannot stop people's funds from moving from banks to private assets such as gold and Bitcoin.
I hope the above article on understanding the impact of the Federal Reserve’s interest rate hike on Bitcoin will be helpful to investors.
As the Federal Reserve sends more signals that it is about to take tightening measures, the entire investment market is now in chaos. This is completely different from raising interest rates that indirectly reduce the money supply, because this quantitative tightening will have a greater impact on the market. Much more often, the central bank will withdraw funds directly from the market. As the Federal Reserve increases the speed and intensity of its tightening measures, the U.S. dollar will definitely appreciate further, and the possibility of capital outflows from emerging markets will further increase, which is expected to have a relatively large impact on many industries.
In the crypto industry, if you want to seize the next bull market opportunity, you must have a high-quality circle, so that everyone can stay together and maintain insight. If you are just one person, looking around at a loss and finding that there is no one around, it is actually very difficult to persist in this industry.