How Fed Rate Hike Impacts Bitcoin Market?

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How Fed Rate Hike Impacts Bitcoin Market?

While the Bitcoin communities are getting too indulged in blaming Evolution Marketplace for the recent $50 crash, it seems they must be prepared for even more deflationary actions by the end of this year.

The words may seem a little conspired, but nonetheless they have been truly constructed out of the dotty forecasts of Federal Open Market Committee (FOMC). The US central banking system recently published a press release in which it discussed the possibilities of spiking interest rates sometime this year if, by any chance, they see any further improvements in the labor market and the inflation corrects itself to around 2% over the medium term.

us federal reserve bitcoin

In addition to this, the proposed hike, if comes into effect, is likely to improve exports, a sector that seemed to have weakened enough due to the zero interest rate scenario. But as many experts believe, the hike will be very modest initially but will pick up by the time the total of eight FOMC meetings have been conducted.

The Dollar Will Strengthen

One thing that is definitely going to happen post interest rate hike is farewell to a cheap dollar. High interest rates will attract more foreign investors to yield better returns from their forex investments, causing more demand of the USD. Conversely, a spiked dollar value will also influence Americans to buy foreign products and further to invest in foreign companies.

And as we can notice with the multiple currency charts against the USD, the greenback seems to have regaining its grounds after all. According to the analysis published at FXStreet, the dollar’s value has surged notably in the wake of the FOMC’s announcement, despite the released of a “weaker than expected” economic data. The data however was immediately recorded (the values might have corrected by the time you are reading this article).

To tackle an expectedly muscled dollar, the central banks around the world will be required to spike their interest rates as well. Speaking specifically of the European Central Bank that had recently announced to keep its interest rates at a negligible 0.05%, it would be interesting to see whether they would still like to go with a low rate plan. In either scenario, we are looking at the sustenance of a EUR/USD in the coming months.

Bitcoin Will Be a Dramatic Treat

It would be fun to see how a newer trading instrument such as Bitcoin would react to the gradual unwinding of the US market. A stronger dollar would indeed overshadow Bitcoin, especially in times when the cryptocurrency’s value has already been wrecked enough. However, another aspect of this theory depends on the demand of Bitcoin that is also expected to surge this year, thanks to the recent promising mainstream inclusions  (read here).

In the next few months, the Bitcoin community will have to come ahead of its comfort zone to attract both forex and stock investors. There could really be a mood shift that could impact global markets and US companies’ stocks due to a strong USD. If Bitcoin manages to prove itself as an alternative, we might say it will be able to find a stable consolidation. Otherwise, we know how it falls against the dollar — scarily.