The Cryptocurrency Market Could Soon Face Its Toughest Tests
- Historical review
In March, the Fed announced the first rate hike in 22 years of 25 basis points. As expected, traditional and digital asset markers reacted in a sharp correction as traders and investors redistributed their funds towards less risky options. But a single rate hike is not enough to stabilize inflation and the economy, which is why WuBlockchain describes how a cycle of rate hikes can affect the cryptocurrency market.
Although there are many market factors that affect the price and movement of Bitcoin from a long-term perspective, macroeconomic factors such as rising rates can fundamentally change the shape of the digital asset market.
In the analysis presented by Colin Wu, reporters compare Bitcoin’s performance during the current rate hike to similar time and conditions for stocks. Although the two types of assets are completely different, they are still relatively riskier options for investors, which is why rising rates affect them both similarly.
According to the analysis, stock performance deteriorated significantly after the regulator raised the key interest rate in the country. But while falling for the 1-3 months following the rate hike, stocks quickly recovered to their previous value later on.
Financial experts expect at least seven hikes in 2022 and three more in 2023.
At the end of the article, Wu suggests that the first 1-3 months from the first rate hike are historically the best buying opportunities since assets tend to rally after the highlighted period. But at the same time, it is important to note that the cryptocurrency market differs greatly from the stock market of the 20th century, and the rules applicable to it may not work in the modern financial age.