Impact of Interest Rates on Bitcoin: A Closer Look
The Challenges for Bitcoin
In analyzing the economic expectations shared by the Federal Reserve, it becomes evident that the interest rate is projected to remain at 5.1 percent by the end of 2024 and drop further to 3.9 percent in 2025. Both figures reflect a 0.5 percent increase compared to the previous forecast in June 2022.
This projection implies that we are just at the beginning of a strict regime of higher interest rates set by the US central bank. This shift marks a significant departure from the past decade’s low interest rate environment.
During the past decade, interest rates remained lower than inflation, resulting in negative real interest rates. However, the current scenario shows interest rates surpassing inflation.
If this situation prevails for the next 10 years, it could potentially have a tremendous impact on the price of Bitcoin.
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Implications for Bitcoin’s Price
This change in interest rates reduces the attractiveness of investing in risk assets like Bitcoin compared to the past 10 years. Previously, investors could not invest in US treasury bonds to outpace inflation. Therefore, they had to seek riskier investments to combat inflation.
Now, the scenario has changed. By simply investing in treasury bonds, investors can easily surpass inflation as they offer guaranteed returns. This guarantees a more straightforward choice for many investors.
Why take on the risk for higher returns when you can beat inflation with practically guaranteed returns? While there are still nuances involved, this scenario is not necessarily bullish for Bitcoin.
However, it is essential to note that it is expected that the actual interest rates will turn out to be lower than what the Federal Reserve currently estimates.
The projected increase in interest rates by the Federal Reserve, as indicated in the economic expectations, presents challenges for Bitcoin. The shift towards a higher interest rate regime makes risk assets like Bitcoin less attractive compared to the past decade. The availability of guaranteed returns through treasury bonds provides investors with a simple alternative to combat inflation. However, it is yet to be seen if the actual interest rates will align with the Federal Reserve’s estimates.
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Amerikaanse rente, Bitcoin, Bitcoin koers, Dollar, Federal Reserve