The prospects of rate hikes and higher inflation are probably two of the most important market themes currently driving the price of cryptocurrencies. Latest inflation figures have skyrocketed to 7.5%, the highest reading in over four decades, which is expected to prompt the US Federal Reserve (Fed) to raise rates at a faster pace than expected.
Is Crypto a Good inflation Hedge?
Bitcoin (BTC) and other cryptocurrencies are perceived to be a good hedge against inflation.
The limited available supply of only 21 million BTC compared to the infinite supply of the greenback makes Bitcoin an asset with a limited inflation.
Secondly, the traditional save haven assets like gold have lost some of their lusters as an inflation hedge.
For example, gold has only risen by 2% YTD while at the same time, inflation has increased at the highest rate in 40 years. Additionally, since 1970 gold failed to produce positive returns throughout periods of high inflation readings.
This makes Bitcoin a better alternative to gold. As a result, big institutional players and hedge fund managers have come to support Bitcoin as “a great way to protect wealth over the long run,” – said Paul Tudor Jones, quoted by Forbes.
What Fed Rate Hikes Means for Cryptos?
Fed’s coming interest rate hike is likely to favor more the stablecoins. A higher interest rate is likely to spur demand for the US dollar, strengthening the currency.
This, in return, can make dollar-backed stablecoins more desirable to investors seeking to gain exposure to the greenback.
Overall, the whole cryptocurrency market can benefit from this scenario.
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