As tension on the east and north-east border of Ukraine against Russia is still ongoing the conflict between the two countries over the past couple of months made an enormous effect in the US and the rest of the world had to suffer from Inflation as a result of the geopolitical conflict.
Oil prices sour to the sky, Shortage in Africa’s grain supply, Over 60% of Big Companies in Korea are negatively affected, the impact is on a global scale.
To fight inflation countries had to increase the interest rate, US Federal Reserve scheduled a 2-day meeting today with its first interest rate hike since 2018.
At this point, the Central bank will be required to provide a quarterly forecast that could show as many as five or six more quarter-point hikes this year, and possibly three or four more in 2023.
So why is this important to you as a trader or an Investor to understand interest rates, well one thing is interest rates can be neither good nor bad.
Higher interest rates can be good news. The savings in a “high-interest” bank account could grow faster. Also, many fixed-rate investments, like guaranteed interest options or guaranteed investment certificates (GICs), could give you higher returns.
A higher interest rate can also be bad news as it increases your loans, mortgages, and could cause market volatility both from stocks and crypto.
But wait I want you to read more before judging the crisis, if you’re a beginner you might think the market is scary because I mentioned market volatility earlier but I assure you there is something behind the curtains that not everyone sees.
Based on historical data I gathered interest hike affects your asset but not in the long term perspective, especially cryptocurrency.
From 2016 to 2018 there were multiple times of interest hikes due to inflation especially in 2018 when FED had to raise the interest rate 4 times.
And on the year 2018 Bitcoin made an all-time high of 19K when in fact it was the year when the Federal Reserve had to increase interest rate more than 2 times.from 1.75% > 2.0% > 2.25% > 2.5%.
I used Dow Jones Industrial Average (DIJA) as benchmarks or representatives of the stock market as a whole.
As you can see from the chart above every year the interest rate increases from 2016 to 2020 but the overall performance of the market is still positive.
Many newbies will misunderstand the effects of interest rates because it could negatively affect the stock market although it’s true it’s not the big picture.
The interest rate doesn’t stop cryptocurrency instead it's giving us a positive signal, especially at this time of crisis, which I will give further points to be solidified.
This time its different cryptocurrencies have been causing a lot of noise for the last 3 to a couple of years.
And there has been a lot of positive Crypto news lately, and people around the world are slowly realizing the benefits of Cryptocurrency, especially in this time of crisis Examples of it is the cryptocurrency donation, Biden’s executive order on cryptocurrencies, and the recent news, EU rejects PoW ban proposal showing EU’s support on cryptocurrency, not to mentioned there are also a lot of good noises in Asia right now.
The historical data and good news are coming together in this crisis so potentially speaking this market isn’t gonna be bad as we imagine.
In conclusion, It’s clear in the charts above and the points I made that there’s no pre-determined market reaction or outcome of rising interest rates from a long-term perspective.
