The United States Federal Reserve (FED) raised its benchmark interest rate by 0.25 percentage points yesterday in order to contain the inflation, that reached its highest level in four decades.
The move marked the first interest hike in the past 4 years. Two years ago, right at the beginning of the global pandemic, the US central bank cut it to almost zero percent to support the economy suffering harsh disruption and losses.
However, the growing oil and gas prices fueled inflation, which is expected to grow further due to Russia’s war in Ukraine; and the outcomes are already started to affect the world’s economy.
Now the interest rates are said to rise from 0.25% to a range of 0.25-0.50%. Furthermore, FED officials are planning to increase the interest rate up to 2% by the end of the year. Raising the interest rates means the central bank is increasing the cost of borrowing funds, this becomes an extra barrier for spending and correspondingly reduces inflation.
But what does this means for the crypto, and how will it affect digital assets, commonly considered extremely risky?
What do experts say?
Crypto markets positively reacted to FED’s decision, the uncertainty levels decreased and the prices recovered, in his interview with CNBC told Joseph Orsini, director of research at Eaglebrook Advisors.
“Markets have looked forward to FED’s path and process of normalization for months now. What we’re seeing is positive risk-reward to the upside,” he stated.
According to analysts, bitcoin and other digital assets are capable to remain resilient in a rate-rising environment. Orsini offered to look back into the past when Bitcoin still managed to grow by 2000 percent in times of 2015 and 2016 interest rate-hiking environment.
However, the bigger concern that may affect Bitcoin’s price growth more than rate-hike is the general economic slowdown, says Orsini. The inflation, gas and product prices are still high and have the potential to lower the broader appetite for risk assets and thus be a “marginal headwind to bitcoin.”
In the meantime, the popular crypto investors, entrepreneur and influencer Anthony Pompliano criticized FED’s decision to raise interest rates by 0.25 percentage points.
Fed brining a water gun to an inflation war.— Pomp (@APompliano) March 16, 2022
According to him, people expected to FED to fight the inflation with a bazooka, or at least twice higher interest rates than offered. The current ones are a step down a path to address inflation, he said adding that “I fear that it is not going to be anywhere near what we’re gonna need.”
Meanwhile, Matt Hougan, chief investment officer at Bitwise Asset Management commented that “rising rates are like a wet blanket on crypto”. According to him, this and ongoing inflation might turn investors to look for less-risky investment assets than yet highly volatile digital currencies.
Despite that, he sees long-term trends and fundamentals supporting the price of Bitcoin as “incredibly intact”. “The number of people working in the ecosystem, the regulatory trends, the new types of investors that are coming in, the applications, concerns about inflation, there are fundamental drivers of bitcoin to support the substantially higher price, said Hougan.
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