the bitcoin price is affected by higher interest rate expectations

That Federal Reserve (Fed) has “limited room for maneuver” to raise interest rates due to high oil prices and a threat of recession – and this could lead to higher Bitcoin (BTC) prices, said the cryptocurrency research and investment firm Coin shares. Other people also remain positive about the long-term, saying that Bitcoin’s network effects make it likely to succeed.

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In a post on the CoinShares blog on Thursday, James Butterfillthe firm’s head of research, said current interest rate expectations “are already included in the current Bitcoin price.”

“Bitcoin now has a well-established inverse correlation to the US dollar. This makes sense because of its new stock of value properties, but it also makes it incredibly interest-sensitive,” Butterfill wrote.

He added that the price declines seen on Bitcoin over the last six months can be “generally explained as the direct result of more aggressive rhetoric from the Fed.”

The article also points out that Bitcoin’s correlation with gold has declined over the years 2021 and 2022, while the correlation with equities – and especially more price-sensitive growth stocks – has increased “significantly.”

Still, there is a growing risk of recession in the U.S. that the Fed should consider, Butterfill argued. He said some economic indicators, including wage growth and the Purchasing Managers’ Index, have begun to “turn around”.

In addition, Butterfill pointed to rising oil prices as “the most worrying indicator” for the US and global economy. Sharp rises in oil demand and prices have “almost always” been followed by economic recessions in the US, Butterfill warned.

Comparison between oil demand and recession in the US:

Finally, Butterfill said that while the Fed is likely to continue to raise interest rates through the summer, the US Federal Reserve is likely to take “a more moderate outlook” for economic growth going forward, arguing that this is likely to weaken the US dollar relatively. to other fiat currencies.

The article concludes that

“[N]We believe that Bitcoin is a good insurance against this monetary policy mess. “

Long-term growth likely despite recent volatility

By taking a slightly different, long-term approach to investing in Bitcoin, Charlie ErithCEO of Bitcoin and gold-focused asset manager ByteTreesaid in an emailed comment Thursday that investors should look past Bitcoin’s recent price drop.

Although Bitcoin’s recent volatility has worried some investors about the asset’s ability to protect wealth, the bottom line is that Bitcoin aims to be “a solid asset store” in the long run, writes Erith.

Part of the reason, according to Erith, is that Bitcoin is a “network power asset,” meaning that the value of the network increases as new users join.

Erith, however, clarified that Bitcoin’s success is “by no means a security.” If the network begins to weaken, its attractiveness and value will also weaken.

“But in the long run, the indicators suggest that’s unlikely,” Erith said.

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