The price of Bitcoin and other cryptocurrencies could face headwinds from central banks in the coming months as banks around the world again prepare to tighten monetary policy further amid the pandemic.

Bitcoin and other crypto prices are facing another headwind from central banks – interest rate hikes

As the first central bank in a western industrialized country after the pandemic, the Norwegian central bank, Norges Bank, raised interest rates from 0% to 0% this week, normalizing policy rates when the economy “normalizes”.

“The reopening of society has given the Norwegian economy a significant boost and activity is now above pre-pandemic levels.” Norges Bank continued to explain the rate hike. It added that the rate will most likely continue to increase in December. ”

And while Norway’s rate hikes may not be significant on their own, central banks tend to stick together on interest rate policy, as Nik Bhatia, Bitcoin proponent and author of Layered Money, pointed out:

Aiming to pave the way for tighter monetary policy, the Bank of England (BoE) warned on Thursday, while keeping interest rates unchanged, that “global inflationary pressures will remain strong”. It is also pointed out that “the cost pressure may be more persistent” than previously assumed.

Similarly, the US Federal Reserve (Fed) decided this week to keep rates unchanged despite stating in its statement that “inflation is picking up” and “is on track to outperform”. 2% on average for a while ”

It can thus be clearly seen that the coronavirus epidemic has led to an increase in inflation in many countries. And before such a financial crisis, banks left interest rates unchanged. Many predict that while inflation appears to be in favor of BTC and many other cryptocurrencies, it won’t happen if banks decide to tighten monetary policy by raising interest rates.

The reason why the price of Bitcoin and other cryptocurrencies is subject to turbulence from the central banks’ interest rate hikes

In comments to reporters, Fed chairman Jerome Powell said the cuts – which would mean a $ 120 billion reduction in the central bank’s monthly bond purchases to prop up financial markets – could begin as early as the next Fed meeting in early November, assuming , the job market remains “pretty strong.”

Given soaring inflation and worsening labor market conditions, some analysts see the market almost relieved as the Fed moves towards rate cuts and rate hikes.

“The US economy no longer needs a large amount of liquidity“Paul Donovan, chief economist for UBS Group AG Wealth Management, told Bloomberg on Thursday that there was almost a sense of relief.

And while high inflation is often believed to be good for Bitcoin, rising interest rates are seen as a headwind for hard assets like Bitcoin and gold as they make bank deposits more attractive.

It should be noted, however, that real interest rates – d in the negative range.

However, looking back at recent Bitcoin price movements, even discussions about possible rate hikes, especially in the US, have resulted in losses for the number one cryptocurrency, with central bank meetings in April and June leading to a sell-off of $ 2. led% to 5%

Looking ahead, after the US decision to keep rates unchanged, Bitcoin responded with higher trading for the next two days until a China-triggered sell-off took place on Friday.

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