Sky-high interest rates are getting tagged as a necessity of the cryptocurrency market lately. This sentiment arises as we continue to realize that reliance on central banks to back our investments is gradually eroding, pushing us to look closer at the health of companies and products we decide to invest in.
The United States Federal Reserve Open Market Committee’s consistent decision to hold rates at 5.25% to 5.5% was hardly a surprise. What was surprising, though, was an upward adjustment to the forecast for the Federal Funds Rate. As per the revised projection, there will be an upsurge to 5.1% by the end of 2024, falling to 3.9% at the end of 2025, and landing at 2.9% by the end of 2026. The consensus is that these numbers, which are highly elevated compared to previous estimates, signify a lasting high interest rate scenario in the United States.
Cryptocurrencies, including Bitcoin and ETH, felt the brunt of these announcements, their prices faltered, slipping below significant thresholds. The data points towards a gradual return to the state of the U.S economy that existed before the 2008-09 financial crisis, where growth and inflation rates remained balanced. Similarly, a U.S. interest rate averaging around 4% over three years and annual inflation greater than 2% wouldn’t be surprising in these resurfacing older norms.
Investors, however, have accustomed themselves to the sops of central banks pumping quick money into economies to combat crises concurrently, which has shifted their perspectives. A booming economy and steady inflation rates are now perceived negatively, a turn of events glaringly noticeable in the crypto market’s responses. A paradigm that’s rather exciting considering Bitcoin’s origin was in the midst of a financial crisis, being a direct critique of the loose monetary policy decisions of central banks such as the Federal Reserve and the Bank of England.
In the existing scenario, we find ourselves unable to rely on central banks for guiding our investments. Instead, our attention needs to turn towards assessing the health of companies, understanding the utility and quality of products and services they offer to their customers. In the realm of cryptocurrency, this means we must thoroughly scrutinize the robustness of the crypto ecosystem, and what it can offer to its users.
Several crucial decisions are pending with the U.S. Securities and Exchange Commission, such as the ruling on several Bitcoin spot ETF applications, which can significantly affect the role cryptocurrencies will play in the global asset landscape. Suppose even one of these applications gets approved, we’ll see cryptocurrency entering many investment portfolios in the next bull market.
But a refusal can force Bitcoin and other cryptocurrencies to stay as peripheral assets. However, this doesn’t erase the possibility of finding new price drivers and reaching previous all-time highs. But it’ll require us to wait and watch until the SEC’s final verdict appears. While interest rate decisions from FOMC and their long-term implications suggest a dull outlook for the global economy’s foreseeable future, the under-40 new-age investors may find themselves in unfamiliar territory. But a return to the old economic norms might just be the turn of events needed for the world, even, surprisingly, for cryptocurrency markets.
Source: Cointelegraph
