We often hear "the Fed raised or lowered interest rates"
But what is the connection between interest rates and Bitcoin? ๐ค
Come let me explain to you ๐งต
โซ When raising interest rates Tightening
means that the Federal Reserve wants to reduce liquidity
in the markets to control the inflation rate
"People stop investing and go put their money in the bank"
๐ธ The impact on crypto is negative ๐
- Borrowing is expensive, thus reducing investments
in risky assets like digital currencies
- Rising interest rates enhance the value of the dollar which reduces
from the attraction of investors to Bitcoin
โฌ When lowering interest rates Easing
means that the Federal Reserve seeks to stimulate the economy
by increasing liquidity and reducing borrowing costs
" People withdraw their money from the bank and invest "
๐ธ The impact on crypto is positive ๐
- Investors are looking for higher returns in
risky assets like Bitcoin and Ethereum
- Lowering interest rates weakens the dollar and raises
The attractiveness of crypto as an alternative asset
๐งต If you are an investor or following the crypto market from
it is essential to follow the two main indicators that the decision depends on
the Federal Reserve ๐๐ผ
๐ถ Inflation Index CPI / PCE
is the basic measure for the rise of goods and the bank
The Fed's goal is to maintain the inflation index
Close to 2% if it rises more, they start raising interest rates
to reduce consumption
๐ธ Its impact on the crypto market
- High inflation ๐บ = likelihood of raising interest rates means
Withdrawing liquidity from the market and crypto declines ๐
- Low inflation ๐ป = room to reduce interest rates means
Injecting liquidity and crypto thrives ๐
๐ถ Employment Index (NFP) or unemployment rate
If the market is strong and unemployment is low, the Fed
sees that the public can bear high interest rates
๐ธ Its impact on crypto
- Strong employment = means the economy can bear high interest rates and this is negative for crypto ๐
- Weak employment = risk of recession and possibility of easing interest rates means the market moves positively ๐
โ ๏ธ The digital currency market is very sensitive to liquidity
and the appetite of investors for risk therefore it is affected
" Negatively or positively " in the decisions of the Federal Reserve
