Decisions regarding interest rates made by the US Federal Reserve are among the most important factors affecting all financial markets, including the digital currency market. These decisions create significant volatility in asset prices, stimulating or dampening investors' appetite for risk. So, how does the US interest rate specifically affect digital currencies? And what should investors pay attention to?
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📌 What is the US interest rate?
The interest rate is the percentage at which banks lend money to each other. When the Federal Reserve raises the rate, loans become more expensive, leading to a reduction in market liquidity. Conversely, lowering it means injecting more money and encouraging investment and risk-taking.
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📉 How does interest affect digital currencies?
🔺 Raising interest = Selling pressure
Typically, rising interest leads to:
Investors exiting high-risk assets, such as digital currencies.
Decrease in available liquidity for speculation.
Decline in Bitcoin and altcoin prices.
🔻 Lowering interest = Bullish environment
Lowering interest encourages investors to:
The trend towards digital assets in search of higher returns.
Reinjection of liquidity into the market.
Support for digital currency prices, especially Bitcoin and Ethereum.