Will the Fed's rate hike have a negative impact on Bitcoin prices?

The United States has maintained interest rates near zero by injecting nearly $4 trillion into the financial system through the purchase of debt for nearly seven years. Since its birth, Bitcoin has been in a zero interest rate environment, but this situation may change. According to the analysis of Bitcoin company itBit, if interest rates rise, the price of digital currency may be affected.

The Federal Open Market Committee ( FOMC ) will hold a monetary policy meeting this week to discuss whether to raise the benchmark interest rate. Most analysts believe that the Fed will not raise interest rates this week and may postpone it until the end of this year.

According to the latest dot plot in the Summary of Economic Projections released by the FOMC in July, all members of the committee expect the benchmark interest rate to increase by 0.50%-0.75% by the end of this year. By next year, this rate will eventually stabilize between 3% and 4.5%.

Short-term interest rates have been on an upward trend, and with calls for rate hikes imminent, investors are also preparing for this change, including those who hold Bitcoin assets, as digital currencies may be affected.

If the Fed raises interest rates, then the price of Bitcoin could be negatively impacted, based on two assumptions:

1. The US dollar is rising strongly

The US dollar will benefit from this rate hike, which may trigger capital to flow back to the US market and increase the US dollar exchange rate. The strong rise of the US dollar may have an adverse impact on the price of Bitcoin, because the price trends of the two have always been inversely related, with one rising while the other falling.

2. Speculative investment will decrease

Higher interest rates could reduce speculative investments. As expectations of higher interest rates increase, there have been changes in high-risk investment areas. At this stage, Bitcoin is still a speculative asset, so a large-scale outflow of funds to more stable and less risky investment areas may have a negative impact on Bitcoin prices.

However, Bitcoin investors do not need to worry too much. Although the expected rise of the US dollar may have an adverse impact on the price of Bitcoin, some fairly basic analysis suggests that the relationship between the price of Bitcoin and the Fed's interest rate hike is not that close, because the market always walks ahead of the news, just like the previous global stock market crash, the price of Bitcoin did not rise but fell. The factors affecting the price of Bitcoin are very complex, so we cannot simply think that the interest rate hike is bad news, but we must analyze it in combination with the country's macroeconomic situation.