Next week, Fed Chair Jerome Powell and his colleagues will begin the tightening process with a 25 basis point (0.25 percentage point) interest rate hike, while also emphasising that they will fight inflation hard for the remainder of the year. They must, as always, maintain their flexibility in order to modify the pace if necessary. Cryptocurrency has been promoted as a panacea for all ills, including inflation, low interest rates, a lack of purchasing power, and dollar depreciation. As long as bitcoin was appreciating, seemingly regardless of other assets, those positives were easy to believe in.
Caleb Tucker, director of portfolio strategy at Merit Financial Advisors in the Atlanta area stated:
“Crypto assets used to be thought of as an inflation hedge, but they’ve recently behaved more like traditional risk assets like stocks. In the future, higher rates will be a headwind for crypto assets.”
Indeed, cryptocurrencies, like other risky assets, fell when the Federal Reserve stated in November that it would begin tapering its bond purchases and warned that higher interest rates were on the way.
Bitcoin isn’t a good way to protect yourself against the S&P 500 Index. In fact, in response to the Fed’s activities, the world’s largest cryptocurrency began tumbling in November, months before the S&P 500. Interest rates are expected to climb in 2022, and the major question now is how high they will go. Investors with a long-term investing vision may see this as a good moment to buy up some solid investments at discount prices, given the economy’s robust fundamentals.
Read more: Wharton professor shows concern on “bitcoin takeover” urges Fed to protect the US dollar
