Interest rates have a huge impact on investments. FED decisions may impact Bitcoin’s value. We discuss it in the article below.
The price of Bitcoin is holding steady around the $106,486 level. The Federal Open Market Committee (FOMC) are expected to meet this week, and a decision on interest rates will be made. This could have a huge impact on how Bitcoin performs.
Bitcoin Prices and Interest Rates
Usually, in the run-up to federal meetings about interest rates, the value of Bitcoin tails off. Yet this time, it has managed to maintain a strong position, around $106,486. This has been the result of continued momentum regarding the Bitcoin price over the past few weeks. Looking back at March, a decision made to pause rates alone managed to push Bitcoin forward past the $87,000 mark. This could mean that even a decision to do nothing amps up its price.
On May 5th, the FED purchased $20.5 billion of Treasury Bonds. It did this through SOMA, the System Open Market Account. This is a portfolio of assets managed by the FED. This has been seen as a form of quantitative easing, a tactic by which governments and treasuries introduce money into the supply. In this case, assets are purchased to help stimulate the economy, in this case bonds. This could give some indication as to their overall aims.
How Do Interest Rates Impact Cryptocurrency Prices?
While many people and media outlets are happy to discuss how cryptocurrency is a hedge against general economic changes, it is untrue. The prices of Bitcoin and other cryptocurrencies are very much linked with economic sentiment, particularly that of the US economy.
Generally, when interest rates are high, so is the cost of borrowing money. This means prices are increased for businesses and homeowners who have a mortgage. At this point, people tend to turn towards less risky assets. This means stocks, shares, and cryptocurrencies often lose out. This has been seen in the recent drop in US stocks. After a strong run in April, they have now tailed off in anticipation of a result regarding FED rate cuts is awaiting. People will go towards safe assets like gold or items with high yields like bonds.
Raising the interest rate has consequences. It can slow the economy down, yet it also manages to curb inflation. This can be extremely helpful in economic times like the present one, where prices are rising.
When interest rates are lowered, the cost of any repayments is lessened. This means more money floating around, both in business and homeowners’ wallets.
Lowering rates can give the economy a much-needed kick. It becomes easier to loan money, meaning increased spending and the creation of new businesses. However, it will not help problems like inflation. Thus, lowering rates will mean the price of crypto is likely to go up, while increasing them means it is likely to go down.
How Likely Are Rate Cuts?
The probability of a rate that is below 4% has dropped. Previously, a 90% chance; it has now gone to 76%. The likelihood of FED rate cuts remains uncertain. Some forecasters have said they will begin cutting rates in July. This could mean that a full anticipated Bitcoin bull run may not have backing from interest rates until the middle of the year.
This is quite an optimistic assumption, with many others predicting that it won’t happen in 2025 at all. Morgan Stanley shares this view and believes it won’t happen unless the US falls into recession and the economy needs stimulating. Barclays did have a rate cut pencilled in for June, which was moved to July and then September.
When it comes to the price of Bitcoin, it is not the only indicator of success. A bull-like pack of long positions has formed. It is reminiscent of a similar pattern observed in April, which pushed prices to $94,400. However, upward momentum has stalled in anticipation of a decision. This is quite normal, and has been observed over the last five interest rate decisions.
Most are predicting that the rates will remain steady, staying as they are. It is a rate that is expected to be at the benchmark of between 4.25% and 4.5%. Thus, for cryptocurrency investors and those looking to predict the price of Bitcoin, it is neither here nor there.
Amidst a few dips and spikes, this is the story of the year so far. Bitcoin has tended to hang around price points for a long period before making the next leap. It is now testing its all time high, but seems unable to break it. Thus, it may be better to look at its journey as more of a step, with raises and levels, than a gradual upward curve. If rates hold steady, this is what can be expected in the next few months.
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