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What is the relationship between the Fed and Bitcoin?

13 октября 2022

How the Fed Rate Affects Bitcoin Price

How the Fed Rate Affects Bitcoin Price How the Fed Rate Affects Bitcoin Price

The Feds interest rate is the interest rate at which the US financial regulator lends to commercial banks. Since 2008, the Fed has kept the rate in the range of 0.5%. The current rate is 2.5%. Depending on the level of inflation, the regulator raises or lowers the rate.

Low interest rates encourage banks to lend cheaply to businesses and communities. The company begins to grow, the production of goods increases, and the population begins to buy and consume more. With too much stimulus, inflation starts to rise, currency depreciation causes prices to rise and citizens' purchasing power to decline. In this case, the Fed starts to raise the rate, slowing inflation.

Bitcoin, like other cryptocurrencies, is a high-risk asset. As the key rate declines and credit to companies increases, the economy becomes more money. Money is invested in stocks and bonds, which causes the stock market to grow. Along with stocks, cryptocurrencies are growing.  

If the rate rises, credit becomes more expensive, companies actively sell anything extra to replenish liquidity. The first to be disposed of are high-risk assets such as stocks of small companies, low-rating bonds and cryptocurrencies.  

As the key rate declines, Bitcoin responds to growth, as does the stock market, and when it rises, it declines. The best time to buy cryptocurrencies, when the Fed rate is maximum, and the cryptocurrency rate is minimal. At the Fed rate of about 0,5 it is recommended to monitor inflation, which, at the beginning of growth, should sell the increased assets, preparing for correction.

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