A 50 basis point rate hike doesn’t just affect stocks and bonds, as the cryptocurrency market is also experiencing a fair share of downward price pressure amid high inflation. Thus, market uncertainty creates an outcome of risky assets that include digital assets.
From cryptocurrencies to non-fungible tokens (NFTs), digital assets are certainly seeing the market equivalent of a second meltdown, assuming 2021 was the first year. Last year, strong bullish overtones hit the crypto markets, with Bitcoin and Ethereum both reaching all-time highs towards the end of the year.
Enter 2022 and both languish amid rising consumer prices and tightening Fed monetary policy. Bitcoin is down around 25% for the year while Ethereum is eyeing a decline of almost 30%.
“With inflation pegged at 8.5% in March and the Fed instituting its biggest rate hikes in 22 years in an attempt to bring it down, Americans from all economic backgrounds — not just those in the lowest-paying segments of society – face economic problems every day. dilemmas they haven’t faced in decades,” Michael J. Casey wrote in CoinDesk.
“This uncertainty is an unpleasant experience for anyone other than the savviest (and luckiest) people who know how to make money in an inflationary environment,” Casey added.
Bitcoin Price Data by YCharts
Bitcoin beyond a store of value
Given that Bitcoin has been following stocks and bonds lower, it looks like the major cryptocurrency, or all cryptocurrencies in general, could lose its status as an uncorrelated asset. Indeed they are, but how they track traditional markets may look different.
Casey, however, argues that Bitcoin can serve beyond gold’s version of the digital asset market. In particular, it can offer its own form of governance in an environment where trust in government may decline.
“Now Bitcoin offers an alternative, one with valuable properties beyond just being a store of value,” Casey wrote. “Most importantly, bitcoin is digital, meaning it can be integrated into the mainstream internet economy with programmable capability. And its functionality – both its enforced scarcity and its transaction and check-in mechanisms – is defined by what is essentially a community consensus process.
“In other words, Bitcoin is actually an alternative governance system for our money,” Casey added. “There is no guarantee that people will choose him en masse, but this current era of economic and governmental uncertainty and the mistrust it will sow in institutions offers them as good a case as any for the To do.”
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Uncertainty After Rate Rise Hits Cryptocurrency Markets
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