On June 15th, Federal Reserve Chairman Jerome Powell announced that they will raise interest rates by 3/4 of a percentage point, or 0.75%, already following two other rate hikes earlier this year – some of the highest increases since the year 2000. The federal funds rate, or federal interest rate, is the representation of the cost of borrowing money. When raised, banking institutions pay more to borrow money, which in turn causes them to have to charge individuals and businesses more amounts of money as well. Everything from mortgages to credit card borrowing is affected and as investor portfolios shrink it’s beneficial to know how these increases relate to Bitcoin and the wider crypto markets.
Following these rate hikes, there is usually a much lower appetite for high-risk assets such as BTC and especially altcoins as well. In addition, the Federal Reserve plans to increase rates up to 7 times in 2022. This could mean that Bitcoin and the crypto markets could experience declines in prices at those various potential points this year and that could equate to possible buying opportunities.
Another thing to be mindful of concerning the crypto market is to keep an eye on the S&P 500, which tends to maintain a correlation coefficient with crypto prices. This is because they contain many of the companies within the tech industry, so this of course means that digital assets only serve as a spurious bet when it comes to hedging against some of these large companies. Some believe that in the future crypto markets have the potential to decouple from this correlation with equities but this will take some time, so as soon as we start to see more experimentation within the Defi and GameFi sectors, we’ll start seeing some real progress.
These are just some helpful things to note when thinking about investing in crypto at the moment. Investors should also remember that many factors influence prices, many of which are unknown, and that goes for all high-risk assets as well. It’s best to realize the importance of dollar-cost averaging, keeping one’s emotions at bay, and only invest the money that you can afford to lose – you’ll be better off for it.