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Argument: Why Fed Interest Rates have nothing to do with Bitcoin Price

Some people tend to relate lower federal interest rates to bitcoin’s price fluctuation. In reality, one has nothing to do with another. When federal bank lowers interest rate, it means that banks that provide money to customers reduce their interest rates and it becomes easy for people to obtain money. Lower interest rate results in inflation as the value of money decreases, but it has zero impact on bitcoin’s price. Why? Because it does not necessarily mean cheaper available money would provoke corporate or a person to buy bitcoin.

There’s also an argument that if money is cheaper to borrow, that liquidity can be used to purchase cryptocurrencies. This argument does not hold true in a large number of cases. It is only valid for a limited number of people who can borrow money against some real collateral and then invest in bitcoin. This amount is insignificant to cause any actual fluctuation in the price of bitcoin.

Thomas Lee, the managing partner at Fundstrat Global Advisors, said that Bitcoin is affected by macroeconomics. He argues that if fed rates impact the value of the US dollar, it affects the value of bitcoin too. But it only holds true if bitcoin is a store of value, but it is not.

The only thing that affects the price of bitcoin is speculation. Other assets are actual stores of objective value, while bitcoin is backed by nothing.

Lower fed interest rates result in an increase in economic activity, and more consumption as money becomes cheaper to borrow. The increased inflation that also comes with a lower interest rate is combat by the federal bank by increasing interest rate, which keeps the inflation overall in check. Bitcoin’s value is least affected by the federal interest rates.

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Written by Jai Pratap

A Mass Media Graduate who loves to write. Jai is also a sports enthusiast and a big movie buff. He loves to learn new things.

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