As the Federal Reserve prepares to announce yet another interest raise in order to tame American inflation. With every interest rate raise announcement, bitcoin, alongside the entire cryptocurrency market, has already gotten used to bracing for impact.
However, this time, the world’s largest cryptocurrency was barely affected by the raise. Bitcoin remained around the $16,800 level and mostly traded sideways throughout the day.
According to CoinMarketCap, Bitcoin only suffered a 0.05% decrease in the 24 hours following the FED announcement.
The intraday loss is modest, especially when compared to U.S. stock. S&P 500 and Nasdaq saw a 1% decrease in value after the FED news hit the market.
One of the reasons for this stabilization of BTC against the United States interest rates is due to the fact that the FED is now implementing a “slower” methodology. After several drastic interest increases in 2022, the American Central Bank is now beginning to see a clear path to tame inflation around a desired 2%.
“Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent,” The FED website wrote.
If these goals are achieved, cryptocurrency and other riskier assets might see a prosperous second semester for 2023.
How Can Interest Rates Affect Cryptocurrency?
The year 2022 was marked by constant market meltdowns in cryptocurrency. Most of those happened after an increase in interest rates happened in the USA.
The American interest rates can affect the cryptocurrency market in a number of ways.
First, higher interest rates can make it more expensive to borrow money, which can reduce the demand for cryptocurrency. This is because some investors may be using borrowed money to buy cryptocurrency, and if the cost of borrowing increases, it may make investing in cryptocurrency less attractive.
Second, higher interest rates may also make other investments, such as bonds, more attractive to investors. This could lead to a decrease in demand for cryptocurrency, as investors shift their capital to other assets that offer a higher return.
Higher Interest Rates Could Also Be Good For Crypto
On the other hand, it is also possible that higher interest rates could have a positive effect on the value of bitcoin. If higher interest rates are accompanied by economic growth and increased investor confidence, it could lead to increased demand for cryptocurrency as a speculative investment.
Overall, the relationship between interest rates and cryptocurrency is complex and can vary depending on a variety of factors. It is always a good idea to carefully consider the potential risks and uncertainties involved in investing in cryptocurrency or any other asset before making a decision.