Education By  Artem Khomenko
Normal 2559 26 Sept 2022

How does the Fed interest rate affect Bitcoin?

By  Artem Khomenko 2559 26 Sept 2022
Photo - How does the Fed interest rate affect Bitcoin?

The Fed interest rate is an economic indicator published monthly by members of the Federal Open Market Committee (FOMC).

The Fed funds rate is the interest rate at which banks and other depository institutions provide short-term loans. First of all, this data has an impact on the US dollar and the stock market; it determines the general trend in the state of the economy. The interest rate increase is slowing down the rate of inflation, but at the same time it tightens economic policy for investors.

In other words: low interest rate helps to stimulate economic growth, high interest rate may give way to a recession. In order to cover the shortage of funds, the Fed raises its benchmark interest rate, which makes mortgages and other loans more expensive.

The Fed interest rates have now risen to the highest level for the past 10 years.

The Fed interest rate over the past 10 years(

The Fed interest rate over the past 10 years(

The crypto market responds quickly to the changes of interest rate. Higher rates will be a headwind for crypto assets going forward. It makes crypto investors to be more cautious.  This means that people prefer to invest in low-risk assets such as bonds, currencies and gold. The Federal Reserve is classifying Bitcoin and other crypto as high-risk assets due to strong volatility.

Generally speaking, low interest rates are better for an economy, it increases liquidity in the market and encourages people to invest, as well in cryptocurrencies.

The Federal Reserve announced that it's raising interest rates by 0.75% on September 21, bumping the federal funds rate to a 10-year record of  3.2 % .Bitcoin reacted to the news with strong volatility, it dropped by 5% after the Federal Reserve made its announcement.

BTC price changes after Fed Interest Rate Decision (TradingView)

BTC price changes after Fed Interest Rate Decision (TradingView)

While trading based on the Interest Rate Decision, you need to pay attention to its forecast and actual results. Even if actual data meets the forecast, some volatility may occur, which must be taken into consideration when opening deals.

Don’t forget about interest rate while building your investment portfolio, as it will help to determine the most favorable moment to enter the market.