Bitcoin might suffer yet another setback from the rising prices of the federal rates. The Federal Reserve is widely expected to hike interest rates by 25 basis points (0.25 percent) on Wednesday, to a range of 1.50%-1.75%.
However, a rate hike between 0.5%-0.75% could be bullish for bitcoin, according to some cryptocurrency analysts. While it may seem counterintuitive at first glance, CoinTelegraph spoke with several experts who noted that a higher interest rate from the Fed indicates that the economy is robust enough to warrant one. When the economy does well, investors have more income and are able to take on more risk in their portfolios and the stock market, crypto analyst Joseph Young said via Telegram message.
If there is more cash flow in the market, it means there will be more money going toward investments like bitcoin and other altcoins, he added.”
As a result, stocks are down and bonds are up (at least for today). This is a classic “risk off” move that many investors make when markets become volatile: they sell their riskier holdings and buy into safer assets such as bonds.
Bitcoin Gears Up For Another Loss
But what does this mean for your cryptocurrency portfolio? Well, if we look at historical data from previous periods of rising interest rates in the US economy – specifically between 2004 and 2006 – we can see that there were some pretty good returns made on cryptocurrencies during those years.
And this is only one example; there are many other cryptocurrency market cycles where similar trends occurred during periods of increasing rates (and vice versa).
The Fed has raised rates eight times since December 2015 and will likely raise them at least two more times in 2020 before the end of its tightening cycle, according to most economists’ forecasts published by Reuters last month.
The Fed hiked rates twice this year and each time it did so it gave the markets no indication of how much further it would go or when it might stop raising them again before 2020 ends.
The central bank has said that its policy rate should remain above zero “for some time” after its current hiking cycle ends, which means there could be more increases before 2021 rolls around—and that’s good news for Bitcoin bulls because it means there’ll still be plenty of demand for their favorite digital asset from institutional investors such as hedge funds who see Bitcoin as an uncorrelated asset class with plenty of room left for growth despite its recent crash from $20k highs back down closer to $4k today.