Bitcoin (BTC), Ripple, Ethereum, and other investors in major cryptocurrencies should keep a close eye on the Federal Reserve to find out how fast and how far interest rates in the United States will soar.
They should for this very reason: higher interest rates could devalue the price of these assets, as they did back in early 2000 with dot.com stocks.
BTC, Ripple, Ripple, Ethereum, and other cryptocurrencies have transformed many investors who hinged their resources into these investments into millionaires. But cryptocurrency investors can also lose their millions just as quickly as they made them if the market momentum turns in the wrong direction.
Meanwhile, cryptocurrency experts believe that the Federal Reserve’s policies won’t have a big effect on cryptocurrency prices.
Shidan Gouran, President and COO of Global Blockchain, said:
“Higher interest rates won’t crush Bitcoin, but they will certainly have an effect on it,” Gouran said.
“This is the case for two reasons. The first reason is the slightly more obvious one; low interest rates have made traditional investment vehicles less attractive. This is exactly what made ‘alternative’ investment methods such as BTC appealing in the first place. Higher interest rates will alleviate this disadvantage for traditional forms of investment, which does stand to displace some investment in Bitcoin.
“The second reason has to do with a side effect of Bitcoin’s popularity. As Bitcoin’s value began to spike in December, people started taking out second mortgages on their homes to fund Bitcoin purchases. A rise in interest rates will likely cause a lot of panic selling, because the second mortgages (which have higher rates than first mortgages) will soon become too expensive to service, and investors will likely seek to recover their capital by selling their Bitcoin, even at a loss.”
Darren Marble, the CEO of CrowdfundX, echoes Gouran’s sentiment. His concern is more on the uncertainty surrounding cryptocurrency.
“I do not believe higher interest rates will crush Bitcoin anytime soon,” Marble remarked.
“The Fed is raising interest rates. But it’s doing so cautiously. As we have seen over the past couple months, uncertainty around regulation has been a much bigger factor in the price depreciation of Bitcoin than interest rates might have.”
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