BlackRock, the world’s largest asset manager, recently suggested the US Federal Reserve would continue its rate hikes, resulting in some short-term volatility for cryptocurrencies. Though the current economic landscape is largely stable and the markets are experiencing stability, Fed decisions relating to interest rates have caused uncertainty in the past. Bitcoin (BTC), for example, benefited from investor uncertainty and a flight to quality by increasing its value; however, other digital assets fell in value as a result of the hikes.
When the Federal Reserve gathered on May 3rd to determine interest rates, analysts predicted a divide between an increase of 25bps or an even freeze of the interest rates. Although the Fed took a dovish approach, the uncertainty still remained.
Dmitry Lapidus, of the crypto-native investment fund Dragonfly, believes that the biggest short-term economic issue is the ‘drawn down’ of savings and the effect of this on GDP. He also predicted that, in the near-term, the trend towards higher digital asset prices is likely to continue.
Although the effects of previous rate hikes on digital assets has been mixed, it is becoming increasingly evident that Bitcoin is more likely to endure the hikes, rather than be drastically impacted. For example, BTC rose 8% on the 75bps hike on July 27th 2022, and other small increases have been experienced since.
Markus Thielen, head of research at Matrixport believes that, should the Federal Reserve accelerate rate hikes in a way that indicates more are on their way, the crypto rally is likely to suffer. K33 agreed, stating that an increased focus on growth due to the ‘zero-interest rate regime’ of 2020-21 has caused a ‘correlated hangover’ in the crypto market, which rate hikes may only serve to worsen.
Overall, though it is clear that crypto has been effected differently by rate hikes, how this will occur in the long-term is still uncertain; however, it appears that, in the short-term, the trend of high prices is likely to remain resilient.
Madilyn Robinson
- 2023-03-31
Effects of Rate Hikes on Cryptocurrency
Explore the effects that rate hikes could have on the cryptocurrency market, including Bitcoin (BTC), and what investors, analysts and experts have to say.
