If the Fed Raises Interest Rates, Where Will Bitcoin Go?

12 May 2021

A 15-fold increase in 57 weeks isn't the biggest rally in bitcoin history, but it's a standout compared to the surrounding markets. US stocks tumbled and the US dollar rebounded yesterday after the release of higher than expected CPI figures, intensifying expectations for US interest rate hikes. But the digital currency market seems to be stable, but the Federal Reserve really raised interest rates, digital currency will be so calm?



When Satoshi Nakamoto designed Bitcoin, which is 14 years old, he hoped it would become an anti-inflation tool. But for the first 10 years, Bitcoin was more of a token for dark web transactions, which was certainly not acceptable to the government.

As Bitcoin's influence grew, in 2017 the Chicago Board of Trade launched a bitcoin futures contract, which opened the door to bitcoin trading as a commodity. But that has not given him much relevance to the dollar.

Until the COVID-19 outbreak in 2019, the United States responded to the economic collapse by printing a lot of money. The flood of dollars was like a hungry Wolf, looking for prey everywhere. At the same time, Wall Street tycoons have found a cheap digital currency (Bitcoin dropped to $4,000 in early 2020, with a total market capitalization of less than $100 billion). Bitcoin is much easier to manipulate than gold, and most importantly, it is unregulated and completely anonymous.

Thus, Wall Street's script for the Bitcoin myth has officially arrived. From Grayscale and MicroStrategy to Bakkt, a spot exchange was launched. From "insiders" constantly touting Bitcoin as the best alternative to the dollar, to the advent of digital gold; Institutions from Fidelity to Morgan Stanley to Citigroup rushed into the Canadian ETF listing; From Coinbase landing on Nasdaq to Musk hyping Doge. Bitcoin has soared from $4,000 at the beginning of 2020 to an all-time high of $60,000.

We've seen a complete crushing of commodities over the same period, with gold taking the lead. If inflation-fighting logic has been Bitcoin's talisman, does a rise in the dollar mean the currency is set to peak? Does the prediction that bitcoin should hit $100,000 or even $400,000 by the end of the year fail if the so-called trajectory of bitcoin follows?



This is a paradox for Bitcoin.

First of all, the current investment subject, from retail investors in Asia, is converted to a Wall Street tycoons, so their money, should be on the water come from the federal reserve this time, if the dollar interest rates, this part of the money back, whether to mean that they are not out of bullets, then the currency by faith to shore up their selling?

Second, as the preferred trading tool of the dark web, digital currency has never ceased to be controversial since its birth. Recently, the US pipeline company was extorted. In this case, digital currency has been pushed into the storm again.

Third, in the face of the rise of tens of times, hundreds of times the digital currency bulls firm faith, or cash out? If the dominoes fall, who can save the day? If the U.S. economy does fail, can digital currencies dodge the bullet?

If bitcoin is the inflation-fighting digital gold, then higher dollar rates mean bitcoin should fall. If it doesn't fall, it means there's no correlation between bitcoin and the dollar, and the institutional logic has been falsified, and the market could return to the days of retail investors.