The past couple of months has not been kind to cryptocurrencies.
Post-pandemic, nations all around the world found themselves on the verge of a serious recession. Since then, entities like the U.S. Securities and Exchanges Commission adopted a policy of hiking up interest rates as a way to battle the nation’s crippling inflation.
This move was followed by other leading nations like Australia, the U.K., and the European nations
The interest-rate raises have been one of the most predominant causes of the several drops in cryptocurrency value since August.
The reason for that is the following: Cryptocurrencies are classified as “risky” investments. Once a nation’s interest rates increase, investors see assets like Bitcoin to be not as worth the risk.
For this reason, cryptocurrencies experienced several crashes throughout the last two months.
However, things could be turning for the better.
Several cryptocurrencies rose Tuesday morning on buyer expectations that the Federal Reserve, which has aggressively raised interest rates this year, will relax back from its hardline monetary policy.
As of 10 a.m. ET, the price of Bitcoin – the world’s largest cryptocurrency by market capitalization – was up 4.8% in the previous day, hovering around the US$20,000 mark.
Meanwhile, Ethereum (CRYPTO: ETH), the world’s second-largest cryptocurrency, was up 4.2%.
Investors may credit the Reserve Bank of Australia for sending equities and cryptocurrencies up Tuesday morning after it hiked its benchmark rate by 25 percentage points, while most analysts predicted a 50-basis-point increase.
The Reserve Bank of Australia’s governor, Philip Lowe, described the modest shift to policymakers having already raised rates “substantially in a short period of time.”
Furthermore, Lowe remarked that he is growing concerned about the economy and how these rate increases would affect consumers once their full impact is known.
Lowe stated that the global economy is surrounded by an immensurable feeling of uncertainty – and that the politics of high-interest rates compresses Australia’s financial conditions.
“Higher inflation and higher interest rates are putting pressure on household budgets,” Lowe said in a statement. “With the full effects of higher interest rates yet to be felt in mortgage payments.”
Rapidly rising interest rates have been a big headwind for bitcoin and most other risky assets, causing substantial drops in their prices. The US Dollar Index, which measures the value of the US dollar in relation to other currencies, has also declined in recent days. Another advantage for cryptocurrency is that it has an inverse connection with the dollar.
Despite the optimistic news from Australia, the Australian Federal Reserve is still projected to undertake two more large rate rises by the end of the year, but that plan may alter if fresh inflation data becomes available.