The cryptocurrency market does not operate in a vacuum. Although many investors see it as an alternative to the traditional financial system, the reality is that macroeconomic factors such as interest rates have a direct influence on the price behavior of assets like Bitcoin, Ethereum, and other altcoins.
📈 What are interest rates and why do they matter?
Interest rates are the cost of money. When central banks, like the Federal Reserve (FED) in the U.S., raise or lower rates, they are regulating access to credit and the flow of money in the economy.
High rates: money becomes more expensive. Borrowing costs more, and people tend to save instead of spend or invest.
Low rates: money becomes cheaper. Spending, investing, and risk-taking are encouraged.
💸 What happens to cryptos when rates go up?
When interest rates rise, investors tend to move their money into safer assets like government bonds, which start offering higher yields. This usually negatively affects higher-risk assets like cryptocurrencies.
Lower liquidity: institutional investors prefer stable assets.
Lower risk appetite: interest in volatile assets like cryptos decreases.
Increased selling pressure: many are selling cryptocurrencies to position themselves in safer investments.
📉 Result: the prices of Bitcoin and other cryptocurrencies tend to drop.
🚀 And what happens when rates go down?
When interest rates are low, markets are flooded with liquidity. This favors investment in risk assets, including cryptocurrencies.
Greater access to credit and liquidity.
More money available to invest.
Increased speculation and risk appetite.
📈 Result: cryptocurrency prices usually rise, as happened in 2020-2021, when global rates were near zero.
📊 Real cases
2020-2021: With rates almost at 0%, Bitcoin rose from $5,000 to over $60,000.
2022: The FED aggressively raised rates to combat inflation. Bitcoin fell more than 60%.
2023-2024: Signs of a pause in rate increases spurred a gradual recovery in the crypto markets.
Leave your opinion: how will the change of director of the Federal Reserve of the United States to someone more aligned with Trump affect?
