Why Fed Interest Rate Hike May Not Be Bad News for Crypto

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In Brief
  • The U.S. Federal Reserve increased the interest rates by 0.25 percentage points.

  • The market appears to have taken the news in its stride.

  • Institutional investors likely to seek higher-risk assets to meet their returns.

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The U.S. Federal Reserve (Fed) has increased interest rates for the first time since 2008 in an attempt to rein in inflation

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 its stride, the price of bitcoin fell about 3% in the immediate aftermath of the news but quickly recovered and is currently trading at the $41k mark.

The war in Ukraine is causing many economic problems from immigration to higher prices for commodities, like food and energy, to faster global inflation. “The [Ukraine] invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” said the Fed in a press release.

“This is an expected rate hike but given inflation of 7.9% and a rate hike of 0.25%, it does nothing to abate the deeply net negative real rates and we will continue to see the dollar become less and less valuable to more and more people,” George Harrap, co-founder of Step Finance, said. 

However, the hike in interest rates may not be bearish news for crypto in the long run.

Crypto remains resilient as interest rates rise

“We’re positive on the ability for bitcoin and digital assets to remain resilient in a rate-rising environment. We are also seeing a reduction in the uncertainty around geopolitical risk,” Joseph Orsini, the director of research at Eaglebrook advisors told CNBC. 

“The market’s muted response to consecutive rate hikes might indicate that the Federal Reserve’s decision isn’t proving to be the primary driver of crypto right now,” Michael Safai, of Dexterity Capital, told Yahoo Finance. “Actions in the derivatives market tell us that investors are still being cautious.”

Chris Matta argued that inflation exacerbated by supply chain shortages will continue to push institutional investors to seek higher-risk assets to meet their returns, reported Yahoo Finance.

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Wahid loves to write, especially about Crypto and Blockchain. He started his blogging journey in 2017 and turned to crypto in 2019. Wahid is interested in tech, chess and DeFi. He aims to promote decentralization to everyone on the planet.

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