During the last few days, both Cryptocurrency prices and US equity prices has been shaky and have dropped from their ATH (All-time-high). Reason being that there was uncertainty in leading up to Federal Reserve Chair Jerome Powell speech.
Many investors were speculating that interest rate might increase together with treasury yields because inflation of 2% is being met by the economy.
So how does interest rate affects prices of cryptocurrencies and US stocks?
If interest rates increases, US market will suffer because the cost of borrowing for big companies increases. On top of that, the returns on risk free investment, ie deposits with the banks would increases, therefore there will be an outflow of investments from cryptocurrencies and equities into these safer fixed income assets with the government and banks since interest rate increases and returns are slightly more attractive.
However, Powell announced yesterday (12 hours ago) that economy still needs Fed support and pushes back on inflation worries. Federal Reserve Chair Jerome Powell on Tuesday pushed back on suggestions that U.S. central bank support for the economy risked inflating a dangerous asset bubble, insisting the support was still needed and that investors were responding mostly to expectations for a successful recovery.
Therefore, i believe this year will still rally for both cryptocurrency and US market and we will see a rebound from this dip soon.
Many investors were speculating that interest rate might increase together with treasury yields because inflation of 2% is being met by the economy.
So how does interest rate affects prices of cryptocurrencies and US stocks?
If interest rates increases, US market will suffer because the cost of borrowing for big companies increases. On top of that, the returns on risk free investment, ie deposits with the banks would increases, therefore there will be an outflow of investments from cryptocurrencies and equities into these safer fixed income assets with the government and banks since interest rate increases and returns are slightly more attractive.
However, Powell announced yesterday (12 hours ago) that economy still needs Fed support and pushes back on inflation worries. Federal Reserve Chair Jerome Powell on Tuesday pushed back on suggestions that U.S. central bank support for the economy risked inflating a dangerous asset bubble, insisting the support was still needed and that investors were responding mostly to expectations for a successful recovery.
Therefore, i believe this year will still rally for both cryptocurrency and US market and we will see a rebound from this dip soon.