There can be a reduction in the interest rate on the horizon. Here is how this can affect the prices of encrypted currency.

The US Federal Reserve faces great pressure to reduce interest rates. President Donald Trump recently warned that Federal Reserve Speaker Jerome Powell may be in danger if the prices did not say quickly.

But let’s set all the political tones and deals making accounts, and focus on comprehensive questions: What happens to the prices of cryptocurrencies if there is a price reduction? What are encrypted currencies will become more attractive in a low -rate environment?

The relationship between interest rates and encryption prices

The general rule of thumb is that the height Useful interest rates It leads to low encryption prices, while low interest rates leads to high encryption prices. This may seem simplified, but when the rates are lower, the cost of borrowing is lower. Moreover, risky origins suddenly look more attractive on a relative basis. This generally leads to pumping new funds flowing to encryption.

This is the scenario that Charles Hoskinson, the co -founder of both ethereum ((Eth 1.27 %)) and Cardano ((Lead 3.54 %))He sees now happening with the encryption market. In a recent Podcast interview with CNBC, he has provided a scenario where low interest rates may lead to a new speculation madness in encryption, which helps to pay Bitcoin ((BTC 1.85 %)) To $ 250,000 by the end of the year. This is incredibly optimistic, but it gives you an idea of ​​the immediate effect that can have a price reduction on encryption.

Historical evidence

Given that Bitcoin officially started trading in January 2009, three distinct time periods over the past five years can provide important evidence about the relationship between encryption prices and interest rates.

There was a low environment that was created in response to the 2008 global financial crisis; Increased interest rate policy in the Federal Reserve in the period 2017-2018; The environment for the low interest rate created in response to the epidemic.

If you look at these three periods, they all see the same story: low interest rates help to encrypt, while higher interest rates hurt them.

For example, during the Covid-19s, central banks around the world reduced the interest rates almost to zero and provided all kinds of new stimulus measures, hoping to revive economic growth.

And I worked! The period from 2020-2021 resulted in a large gathering in the bull market for bitcoin, with a value to (then) over the ages at all $ 69,000 in November 2021.

It is easy to see why President Trump is now pressing interest rate discounts. If the new definitions will reduce economic growth in the future, then there should be a kind of motivation to keep the economy moving. This motivation is cheap money.

Just keep in mind: Crypto is still a relatively new chapter of assets, and we still don’t really know how this will lead after the price cuts. History may be evidence, but it is not an accurate indication of what is happening after that.

What are the blades that you should buy?

Based on the above, Bitcoin appears to be a clear beneficiary of low interest rates. After all, didn’t it rise to $ 69,000 once the prices were reduced in 2020?

However, unforgettable altcoins. In an environment of low interest rates, the most dangerous assets such as Altcoins that have been struck (some of them are up to 50 % of this year) can start to look more attractive on a relative basis. This may mean that we finally get the arrival of the “Altcoin season” – the time of the year in which the risky and bitten altcoins are exploded.

All this should highlight the importance of diversifying the wallet. It is still logical to make Bitcoin concentrate any new encoding purchase in the wake of price discounts, but time may be the time to explore new coins to diversify your wallet.

My personal choice will now be coins with a great exposure to The decentralized financing (Defi) The sector. This is what The world is financial freedomIt seems that the Trump family Crypto is now loaded. The performance of these currencies was very good during the 2020-2021 cryptocurrency market, which was highlighted by the speculative “Divi Summer” for 2020.

As always, remember to do due care. The encryption has always been risky and volatile, and the current economy is not particularly impartial, with unknown consequences.