The crypto investors are in for another rough time as the Federal Reserve announced the hike in interest rates on Wednesday. The latest interest rate hike is the highest in over a decade as it comes on the heels of a broad market correction.
Fed Hike Interest Rates Amid Crumbling Economy
On June 15, the Federal Reserve revealed its interest rate was up to its highest in over a decade. The Fed carried the decision to curb the tide of growing inflation in the United States. Central bank officials noted that the current events are beyond their control and require drastic actions.
However, the commitment of the Fed to control inflation has led to wide economic issues like low credit conditions and reduced demand for housing. Similarly, the stock and crypto markets are strongly hit, with the latter in a rough patch.
It is highly unlikely that this will be the last increase of the year. There is a general sentiment that the odds of another increase are high. The Feds will attempt to raise the rates once again as inflation continues to soar.
However, the crypto industry is not immune to such an increase as it has been playing out in the digita assets space for some time.
What can crypto investors expect from the recent Fed hike? How will the hike impact the future price of cryptocurrencies?
Assessing the Crypto Markets’ Vulnerability Amid High-Interest Rates
Cryptocurrencies and commodities are the two major assets with different reactions to increased interest rates. While commodities like oil have soared, the value of cryptocurrency and other risky assets have plummeted significantly.
The widely held view that cryptocurrency is the perfect hedge against inflation, low-interest rates, and other economic variables did not hold. This can only be possible when the value of digital assets is high, not when it is down, as seen in the current situation.
Despite being labeled as an inflation hedge, the past weeks have shown cryptocurrency to act as risky assets like stocks. Higher interest rates would serve as a headwind for digit assets.
It is worth noting that cryptocurrencies and other risky assets reacted to reduced liquidity. As the Fed announced its plan to purchase more bonds last November, this signals the beginning of higher interest rates.
The price of crypto is feeling the heat of sustained higher rates even as the market continues slowing down. More high-interest rates will induce another plunge in the price of digital assets, leading to a steady market decline.
That said, cryptocurrency’s institutional adoption and retail activities will slump further in light of the fluctuations in the global economy. Investors will no longer see crypto as viable investment assets or, at worse, long-term investment products.
Emotions are high, and both short and long-term traders are looking for relief from the ongoing price slump of digital currencies.
Meanwhile, the current bearish trend may appear to be the ideal time for long-term investors to buy the dip.