What impact will the interest rate hike have on the crypto community?

With global hawkish central banks about to raise interest rates, will Bitcoin's future market be a slump or will it rise against the trend? This is the question that global investors are most concerned about. Under the influence of this uncertainty, the first week of February 2022 is not peaceful.

On February 4, European Central Bank President Christine Lagarde no longer ruled out raising interest rates this year, moving closer to the tightening stance of central banks around the world. Officials privately expect to adjust policy guidance as early as next month.

Just a few minutes before the ECB's policy decision, the Bank of England raised its benchmark interest rate by 25 basis points to 0.5%, less than two months after the last 15 basis point increase. The economic aggregate of the UK and the eurozone countries is of great importance in the world, and their economic policy direction may have a profound impact on other countries in the world.

The arrow is on the string and has to be shot? Global hyperinflation may be approaching a critical point

In fact, the inflation rate in major countries and regions around the world has reached a point where the brakes must be applied: the euro zone's consumer price index (CPI) rose 5.1% in January, exceeding economists' expectations, marking the largest increase in at least 20 years and more than twice the European Central Bank's 2% target; the UK's CPI in November and December hit a 10-year high and a historical high of 5.4% respectively, setting a new record for the fastest growth in 30 years; the United States even set a 39-year record with an inflation rate of 7%.

As early as December 15, 2021, the Federal Reserve announced that it would reduce its monthly purchases of U.S. Treasury bonds and mortgage-backed securities (MBS) by $30 billion (originally planned to reduce by $15 billion per month), twice the previous amount. Based on this, the asset purchase plan is expected to end at the beginning of next year instead of the middle of the year to control the pace of inflation. Therefore, among the elites in the U.S. financial community, the majority of people expect the Federal Reserve to raise interest rates three times in 2022.

Higher interest rates could ease inflation, but they would also be unbearably painful

The strengthening of global expectations for interest rate hikes has triggered panic in the market, causing a sharp drop in US stocks. Data shows that the S&P 500 index fell 11% in the 14 days from January 13 to January 27. Goldman Sachs has directly warned the Federal Reserve for the first time: If the tightening policy causes a "hard landing" of the economy, the United States may face an economic recession.

The Bank of Canada, which had been trying to curb high housing prices caused by inflation, unexpectedly announced that it would not raise its benchmark interest rate for the time being, fearing the impact of a rate hike. It should be noted that Canada's federal banking regulator had previously warned that a rate hike could cause housing prices to plummet by more than 20%.

In response, the Bank of Canada explained that "the new wave of epidemic has brought uncertainty to the economy", but we can read from it that the people in charge feel helpless as they are caught between ice and fire.

In contrast, the statement of BlackRock, the world's largest asset management company, was more radical, directly asserting that the global interest rate hikes would be more noise than action: "We believe that despite the tough rhetoric from central banks, they will eventually admit that fighting inflation by raising interest rates sharply will impose too high a cost on economic growth. This is why we believe that the ultimate policy response will be mild."

The crypto market is looking good, and the resistance to interest rate hikes is strong, which will help Bitcoin to grow.

In contrast, the crypto asset market experienced a decline before an increase around the Spring Festival this year. After rising for five consecutive days, the price of Bitcoin has reached $45,000, and Ethereum has returned to $3,200.

Of course, the frequent fluctuations in traditional financial markets and the unique prospects of the crypto market have also attracted the attention of regulators. On February 8, the US SEC solicited public feedback on whether Bitcoin ETFs and Bitcoin itself are susceptible to manipulation and fraud. From the perspective of historical laws, the rapid development of new things will more or less threaten traditional forces and will inevitably face obstruction from the latter.

However, from a development perspective, the potential for crypto assets compared to traditional finance is still difficult to estimate, which may also explain why Bitcoin’s value potential is far from reaching the critical point, and the long bull trend is beyond doubt. Of course, the interest rate hike policies of major central banks around the world will also have an impact on the crypto world. However, from the perspective of the actual economic environment, there is still great resistance to a resolute and substantial policy shift, which in turn is also a certain benefit to the crypto market, thereby supporting the market’s long bull expectations.

Between the ebb and flow of the tide, it will be a rare opportunity to seize the turning point of the trend

The long-term bull market expectations and the bottom market have enhanced the industry's money-making effect. According to public media reports, more than $800 million of venture capital has poured into the crypto asset field in the past week. This also means that a new round of bottom-fishing trends may have emerged, and more funds and investors will enter the crypto world. Glassnode's weekly report on the chain shows that the number of non-zero wallets has reached a record high and has not been affected by the previous decline.

The current round of monetary easing cycle led by the Federal Reserve will sooner or later come to an end, when the direction and trend of the capital market may undergo major changes, and a new round of reshuffles will follow. For investors, standing at a new starting point and choosing a new track, and then making careful choices and decisive decisions, may be a good way to overtake in a new lane.