After the short revival last week, bitcoin price is tested by the possibility of an interest rate hike of 0.5 percentage points in March and disputes between Ukraine and Russia. Market sentiments are divided in view of bitcoin’s short-term performance, but a new wave of volatility is almost unavoidable.
How will interest rate hikes affect bitcoin?
Last week’s higher-than-expected CPI data pressured the Fed to take a firmer stance on surging commodity prices, with major investment banks also raising their forecasts for a rate hike in 2022.
In a note to clients, HSBC economist Ryan Wang said the Fed will seek to beat down inflation rate in the second half of the year by imposing stricter policies. It is expected that the Fed will raise interest rates in the early stage, raising interest rates by 50 basis points in March, and will further raise interest rates four times during the year, each time by 25 basis points.
The market is worried that multiple interest rate hikes by the Federal Reserve will increase the volatility of the US stock market and affect cryptocurrencies. Generally speaking, selling higher-risk assets has become one of the strategies in times of risk.
Although the interest rate hikes in the short-term could drive down the price of bitcoin, it is not the major price determinant of bitcoin, as the bitcoin market has developed enough and use cases continue to build up.
A pro-bitcoin Russian government?
When asked to name several governments that are anti-bitcoin, Russia is always on the top of our list. However, the country is showing signs of recognizing the potential of bitcoin and supporting it.
Recently, Russia’s Ministry of Economic Development made a proposal to introduce lower energy fees to miners and date centers in certain areas with “sustainable surplus in electricity generation,” and recognize crypto mining as a commercial activity. These actions not only contribute to the local mining activities, but could be viewed as a friendly signal to cryptocurrencies. With high inflation going in the country, normalizing crypto businesses could usher in a new wave of investors and drive up demand.
“Our position coincides with the position of the government that cryptocurrencies should be regulated, not banned. Effective regulation is needed that will allow citizens and organizations to legally acquire cryptocurrency, take it into account AML [Anti-Money Laundering] mechanisms and taxation,” said Anatoly Popov, deputy chairman of the executive board at Russia’s banking giant Sber.
Meanwhile, Ed Moya, senior analyst at Oanda, said that bitcoin has “really become the ultimate momentum trade and there are so many risks that can trigger a 40% drop out of nowhere.” However, JPMorgan strategists remain bullish on bitcoin’s long-term development, estimating that the future price of Bitcoin could reach $150,000, up from its prediction of $146,000 made in 2021.
How to beat volatility
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