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HomeAltcoinsRise in interest rates may affect decentralized finance and crypto: Bloomberg Report

Rise in interest rates may affect decentralized finance and crypto: Bloomberg Report

Bloomberg Economics analysts have observed a pattern of monetary policy tightening across the Group of Seven (G7) countries. According to its report, central banks are shrinking their balance sheets and raising interest rates.

With an interest rate rise expected this month, the Bank of England (BoE) has already begun to reduce its holdings. In addition, the Bank of Canada and the European Central Bank have established a timeline for beginning quantitative tightening in their respective financial markets.

Last year, the G7 central banks contributed $2.8 trillion to their reserves to assist their economies recover from the impact of the COVID-19 pandemic. However, the Consumer Price Index (CPI) increased by 7.9% in March, marking the biggest annual inflation increase in over 40 years.

To battle inflation, central banks are abandoning the quantitative easing approach, but financial markets are already experiencing the consequences.

“This is a major financial shock for the world,” said Alicia Garcia Herrero, head economist at Natixis. “You are already seeing the consequences of tapering in reduced dollar liquidity and dollar appreciation.”

Central banks’ new policy moves also have an impact on cryptocurrency markets like DeFi. Despite the acquisitions by MicroStrategy and the Luna Foundation Guard, the price of bitcoin (BTC) and other cryptocurrencies has halted. This indicates a growing link between cryptocurrency and traditional financial markets.

Bitcoin is now trading at $38,843, with a worldwide crypto market worth of $1.74 trillion. According to Defi Pulse data, the total value locked (TVL) in DeFi projects is $75 billion, down from a peak of 87 billion in February. According to experts, the Fed’s and other central banks’ actions have “made it tough to take on risk” in the markets.

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Jeewan Singh
Jeewan Singh
Jeewan Singh is CryptoShrypto’s content writer and a seasoned writer with over two years of experience in writing about Indian Securities Market. Jeewan's participation in Blockchain and Cryptocurrency started in late 2020, and he hasn't looked back since. The technical and economic outcomes of cryptocurrency are what spark his curiosity, and he keeps one eye on the market.
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