Why the Fed’s Interest Rate Hike Mightn’t Be Such a Bad Thing for Crypto?
In an effort to keep inflation under control crypto, the Federal Reserve of the United States (Fed) raised interest rates for the first time since 2008. The U.S. central bank announced that it was lifting its benchmark rate by 0.25 percentage points.
The market appears to have taken the news in stride; bitcoin’s price plummeted by approximately 3% in the immediate aftermath of the news, but rapidly recovered and is now trading at $41k.
The conflict in Ukraine is producing a slew of economic issues, ranging from more immigration to higher commodity costs such as food and oil, as well as faster worldwide inflation. In a news release, the Fed stated, “The [Ukraine] invasion and related events are anticipated to exert significant upward pressure on inflation and impact on economic activity.”
“This is a predicted rate hike, but given 7.9% inflation and a 0.25 percent hike, it does little to alleviate the profoundly net negative real rates, and we will continue to see the dollar lose value to more and more people,” said George Harrap, co-founder of Step Finance.
The increase in interest rates, on the other hand, may not be bad news for crypto in the long run.
As interest rates climb, crypto stays resilient
“We believe bitcoin and digital assets will be resilient in an environment where interest rates are rising. “We’re also seeing less ambiguity around geopolitical risk,” Eaglebrook advisers’ director of research Joseph Orsini told CNBC.
According to Michael Safai of Dexterity Capital, “the market’s modest response to consecutive rate hikes would signal that the Federal Reserve’s decision isn’t proving to be the key driver of crypto right now.” “Investors are still wary, as evidenced by derivatives market activity.”
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