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Bitcoin price vis-a-vis U.S. Fed’s interest rate decision

Federal Reserve Bank of New York Building (Michael Daddino_Flikr)

Global markets are poised ahead of the U.S. Federal Reserve’s policy decision. If the Federal Open Market Committee (FOMC) decides to hike interest rates, it will most likely create ripples in the global economy. But what would this mean for bitcoin?

An article published on TheStreet explains that the price of Bitcoin could be negatively impacted in case of rate hike and cites two pieces of evidence supporting this hypothesis.

Firstly, the dollar will benefit from the interest rate hike as it is indicative of a strengthening economy and will lead to increased investment inflows. This will further help U.S. stocks. But bitcoin will be negatively impacted as historically it has shown an inverse relationship with the U.S. dollar.

Secondly, rising interest rates may hamper investments in the speculative assets, such as bitcoin, which rose to fame in the zero-interest rate environment. The report says that a shift of higher-risk asset classes has already started and intensified as the likelihood of a rate hike increases. Increasing outflows to more stable investments with lower risk profiles will negatively affect bitcoin price.

However, U.S. interest rate decision is just one of the factors affecting bitcoin price. Global economic conditions, including China’s recent yuan devaluation, also factors in deciding bitcoin price trend. In times like these, the digital currency emerges as a valuable alternative currency and investment option.

By Shampa Mani
  • Market Data
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