The Fed’s assertive tightening projections (hinted 3 hikes in 2017) plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar.

As was widely expected, the FOMC raised the target range for the federal funds rate by 25bp to 50-75bp at its December meeting.

On the flip side, the FOMC is likely to raise its target range for Fed Funds interest rates by 25bp to 0.50%-0.75%, almost exactly one year after the first rate step that brought an end to zero pct interest rates. Additionally, we foresee more downside risks for bullion markets as more Fed hikes in 2017.

The Fed interest rates impact on bitcoin to a degree that most people will not grasp. In an evolution of currency system, we've reached the stage where everything around commerce has been digitalized, from barter to gold, then from gold to other bullion, then switching over to paper currency system. Now is the time for digital currencies.

The higher the rates are, the higher the demand for bitcoin would be. The divergence that you see is happening because gold has been heavily favored by gold bugs for historical reasons (in times of crises, etc) as the go-to commodity based store of value if an economic collapse happens. This was often followed by a period of low-interest rates and then inflation.

As we allude to in this point, inflation is just not happening in the US, due to quantitative easing. As a result, gold has been overvalued, principally if the Fed continues to raise rates in this fiscal year, the projection that would occur. Bitcoin would also rise with an interest rate hike because unlike gold, there is further upside in the capital value of bitcoin, so the need for some type of yield to offset it is greatly reduced.

When the Fed raises rates, emerging market economies have their currency devalued, which raises the effective price of bitcoin for people in those markets, creating more equity value in their bitcoins and driving up demand for more.

This is because the price to mine a bitcoin is largely uniform (electricity price aside) in every country in the world, as it’s a commodity that trades freely across global markets (labor input costs are not germane to bitcoin, unlike gold).

If your currency devalues, it just costs you more to mine a bitcoin or buy a bitcoin. The market doesn’t care how your currency is performing.