Next week we will witness the interest rate report!!
What is the relationship between the interest rate and the cryptocurrency market?
1. When interest rates rise:
The attractiveness of the dollar or traditional currencies increases: Investors prefer to place their money in secure financial instruments such as bonds or bank deposits because they yield higher returns.
Decreased risk appetite: Cryptocurrencies are considered high-risk assets, and when interest rates rise, the desire to invest in them decreases.
Decline in cryptocurrency prices: Rising interest rates often lead to a decrease in liquidity directed towards Bitcoin, Ethereum, and other currencies, resulting in a drop in prices.
2. When interest rates fall:
Weak returns on traditional assets: The attractiveness of saving or investing in instruments like bonds decreases.
Increased risk appetite: Investors seek higher returns, turning towards high-yield assets such as cryptocurrencies.
Increase in cryptocurrency prices: Lower interest rates entice people to pump their money into the digital market, driving prices up.
Example
During the period 2020-2021, with global interest rates declining due to the COVID-19 pandemic, we witnessed a massive rise in the cryptocurrency market.
However, in 2022-2023, when central banks, especially the U.S. Federal Reserve (Fed), began raising interest rates to combat inflation, Bitcoin and others sharply declined in price.
