Bitcoin And The Rising Interest Rate

As the cryptocurrency market grows, so does Bitcoin's backstory. The leader's upward momentum has reversed as the crypto market is experiencing swings this year. Bitcoin's depreciation may be attributed to a number of causes, but a significant one is inflationary pressures that have led to interest rate hikes.

The usual measure of inflation, the Consumer Price Index, rose 8.3% from a year earlier in April, down from 8.5% in March but still very high.

The Federal Reserve is shifting toward a stricter monetary policy to lower inflation; the most recent move to raise interest rates by 50 basis points is the largest rise in interest rates in over 20 years. All stock market sectors have pulled back in response to the prolonged sell-off. Along with them has been a decline in the value of cryptocurrencies such as Bitcoin (BTC). Bitcoin's value dropped by 37% between January 1 and May 12 and more than 50% from its all-time highs in November.

The Federal Reserve is widely anticipated to maintain its policy of gradually increasing interest rates throughout the year on the expectation that inflation would remain above its objective. People should use platforms like briansclub for bitcoin trading.

Bitcoin And The Stock Market

The newest development in the world of cryptocurrencies is the impact of increasing interest rates on Bitcoin. Bitcoin's value has fluctuated wildly over the last several years. However, Bitcoin is not alone. In fact, Bitcoin's price fluctuations over the last several months have closely tracked those of major stock market indices like the S&P 500 and the Nasdaq.

Rising interest rates are particularly problematic for technology companies. Amazon.com, Inc. (ticker: AMZN) is down more than 35% year-to-date as of May 12, while Apple Inc. (AAPL) is down 18%, and Meta Platforms Inc. (FB) is down more than 42%. Bitcoin's price is moving in the same direction. For a long time, the cryptocurrency market leader's value hovered between $40,000 and $50,000; however, that number has just dropped below $30,000. This demonstrates that investors now see Bitcoin as a "risk on" asset.

William Cai, the partner and co-founder of financial services firm Wilshire Phoenix, says Bitcoin followed the downturn in the equity market, but not drastically.

At first, Bitcoin was considered a financially independent asset. Unlike conventional assets like equities and bonds, Bitcoin is unlikely to move in lockstep with other holdings in a portfolio. As a result, Bitcoin may serve as a portfolio diversifier, mitigating the risk of loss from other holdings. But there has been a growing link between stock prices and Bitcoin in recent months, and analysts anticipate this trend will continue into the foreseeable future.

The present economic climate is ideal for substantial shifts in high-risk investments. Bitcoin is recognized as a currency but is still seen as a highly speculative investment opportunity. As of May 9, the 90-day correlation between Bitcoin and the S&P 500 was 0.633, according to data from Arcane Research.

Andy Long, CEO of White Rock Management, a worldwide digital mining corporation, has said, "Short- to medium-term rising interest rates certainly make for somewhat less (of a) short-term optimistic argument (for) BTC."

However, "BTC is hard money that isn't going away," as Long puts it, especially in a future with higher interest rates, freer money, and the resumption of quantitative easing.

Bitcoin Is Growing

Bitcoin's response to the Federal Reserve's decision to hike interest rates is consistent with the market's overall behavior. Bitcoin has only been alive for over a decade, but it is rapidly becoming a fully developed asset class on par with equities, bonds, and commodities. In Cai's view, it is no longer a "fringe asset" or a high-risk investment that investors should sell off in anticipation of price swings.

Cai says that before "you would witness sell-offs in the Bitcoin market when people grew scared," but this is less the case anymore. "Bitcoin has merged into the hazardous asset class," Cai explains. He argues that the current strong correlation indicates the asset class is reaching maturity and that investors will witness decorrelation over a longer time horizon.

Cai notes that despite market volatility, there has been little widespread fear about the underlying technology or sector.

Cai argues that although traders and investors are attempting to anticipate the next crypto move as asset values vary, the underlying asset class and adoption by Wall Street and companies have been continuous and continue to march ahead.

How Do Investors in Bitcoin React to Interest Rates?

The crypto market has been quite quiet recently. The majority of this, according to experts, is due to individual investors reducing their exposure to cryptocurrencies to align with their risk appetite. On the other hand, Bitcoin has been gaining traction with institutions over the last several years.

According to Yubo Ruan, CEO of the decentralized lending and staking system Parallel Finance, retail investors are more likely to purchase while the market is rising and sell during periods of market panic. According to him, retail investors will begin reducing their positions now because of the underlying mentality of retail markets.

Hedge funds and crypto-focused venture capital firms are among the institutional investors that are buying the drop. While some investors are only in it for the hype, most are crypto holders taking advantage of the market downturn to acquire Bitcoin at a discount.

Inflation is rising and expected to stay high, so retail investors need a steady stream of income. Emotionally-driven retail investors may make substantial Bitcoin purchases, only to sell off their holdings when the price drops sharply and they find themselves in need of cash and worried about the market's potential for a lengthy recovery.

What can investors do in this volatile crypto market?

Long says that storing Bitcoin away for five or ten years is the best option. He warns against trying to second-guess the market since it is adept at misleading those who do so.

Future predictions suggest Bitcoin might continue to fall: "We can possibly see a Bitcoin bottom anywhere between $20,000 to $25,000, which can be a decent location to accumulate." 

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