Not only the US Federal Reserve, but also the European Central Bank recently announced new rate hikes to counter the current inflation. The past has impressively shown that the stock and crypto markets are also strongly influenced by rising interest rates.
As an investor in crypto tokens, what should you be aware of now and which mistakes should you avoid? In which assets can investors invest particularly cheaply in the current crypto crash? We would like to clarify these and other questions in this article.
Rate hike in US and Europe
ECB President Lagarde stepped up last Monday after the US Federal Reserve (Fed) announced a 0.75% interest rate hike on Wednesday 15 June. She insisted a 0.25% hike was planned at the July meeting.
This puts the US interest rate between 1.5% and 1.75%, while the EU interest rate is likely to be 0.25% in July. But the end of interest rate hikes is unlikely to be over yet: if inflation persists, further interest rate hikes are only a matter of time, and it is already assumed that the key interest rate will rise more quickly next autumn. will be raised.
Cryptocurrencies and rate hikes in the past
While rate hikes only happen every few years, we can clearly see how this event may have impacted crypto prices in the past. In the case of Bitcoin in particular, an increase in the interest rate level during the price period can be clearly seen, since BTC with a market dominance of around 44% can be regarded as a kind of index for the entire crypto market.
In 2018, when the US Federal Reserve raised interest rates four times, the price of BTC fell by almost 80 percent. All other cryptocurrencies were doing the same back then, causing Ethereum’s value to plummet by more than 88%.
Conversely, Bitcoin’s price rose again a year later in 2019. One reason for this is the Fed’s rate cut.
Why are crypto prices related to interest rate developments?
Economic growth is deliberately reduced as soon as central banks decide to raise interest rates. Raising interest rates serves as a measure against rising inflation, causing people to spend less and save more.
But in an era of less spending, investments like cryptocurrencies are also suffering. People and businesses need to watch their money and there is less money left to invest in bitcoin and businesses.
On the contrary, a rate cut could have a positive impact on crypto prices, as 2019 has shown. With an improving economy, prosperity, willingness to invest and thus the price of Bitcoin increase.
What should investors consider now?
First, crypto investors should remain calm, not rush, and certainly not panic. Because while rate hikes often have a negative impact on the crypto market, it is not certain that Bitcoin and the company will continue to fall.
Some experts believe that cryptocurrency prices could rise soon despite a rate hike. After all, the rise in international key interest rates is almost unexpected, quite the opposite: many investors knew that the corona crisis, the lockdown in China and the war in Ukraine would lead to a shortage of resources and the resulting inflationary reactions. becomes.
So it may well be that the rate hike is already priced in, as many investors are taking precautions and reacting quickly to the situation. Bitcoin recently fell below $20,000 for a reason.
Ingredients for a new euro crisis: the finance ministers are calling for austerity measures and the ECB is allowing interest rates to rise. It can only be wrong! I
— Maurice Hoefgen (@MauriceHoefgen)
Additionally, many investors seem to be taking advantage of the current low crypto prices to invest cheaply in Bitcoin, Ethereum, or other altcoins. Major cryptocurrency prices are unlikely to continue their sharp declines of the past few weeks.
For those who want to invest in cryptocurrencies over the long term, over years and decades, the current crypto crash may also be an ideal time to get started. Not only the functioning of blockchain-based digital currencies is forward-looking, analyst forecasts also indicate that application-oriented tokens could increase in value significantly in the long term.
Shorting can also be an interesting opportunity for short-term traders to benefit from the crypto crash. However, one should be aware of the increased risk involved in short selling cryptocurrencies.
These cryptocurrencies can now be bought cheaply
For long-term investors, the current decline due to the upcoming interest rate hike offers an exciting opportunity to get cheap access to the popular crypto coins. You can currently buy these tokens at an unusually low price:
Big was announced in the media when one bitcoin traded below $20,000 on June 18th. Even though the largest cryptocurrency on the market is currently trading above $21,000 again, BTC has been cheaper to buy for a long time now.
The price has never been below USD 30,000 since its rapid rise in December 2020, but now crypto investors have a new way to profit from the progenitor of all cryptocurrencies in the long term.
Despite its proof-of-work algorithm, Bitcoin looks set to be one of the strongest digital currencies for years to come. Many experts assume that BTC could break the USD 100,000 mark in the long term. Is. So if you are cheap now, you can take over 370% growth with you if Bitcoin should actually master the historic six-digit amount.
Avalanche is also one of the most promising cryptocurrencies that are cheap due to recent price losses. The popular smart contract network has an exclusive infrastructure of three powerful blockchains that work much faster and more efficiently than Ethereum.
With more potential than Ethereum, the AVAX token hit an all-time high of €138 in November 2021, which may not yet mark the magnitude of the avalanche. You can currently buy an AVAX coin for around €16 – investors can now expect a decent profit of 760% if the cryptocurrency can climb to an all-time high in the long term.