Crypto and the Fed: How Interest Rate Can Affect the Market

Over the past two years, higher interest rates have had a significant impact on stocks, cryptocurrencies and commodities such as oil.

The expectation of higher interest rates has had an effect on markets for more than two years, reaching a pivotal point in mid-2023. The Federal Reserve has held them steady at eight of its last nine meetings, including the one held on June 12, after raising them 11 times over the last economic cycle.

At present, few analysts doubt that interest rates will begin to fall as long as inflation, which reached 3.3% in May, remains under control. Major asset classes reacted differently to higher interest rates.

Prices of cryptocurrencies fell along with other high-risk assets, while many commodities, including oil, rallied in early 2022, though those gains were short-lived. As the Federal Reserve's funds rate hikes slowed, then stopped in 2023, both oil and cryptocurrencies appear to have stabilized.

In addition, cryptocurrency values ​​fell along with other risk assets when the Federal Reserve announced its intention to raise interest rates in November 2021 and throughout 2022.

However, the volatility in the banking sector has led many traders to turn to them, believing that future rate hikes will be less aggressive. As 10-year Treasury yields peaked in October 2023 and subsequently declined, riskier assets rose in price.