Changes in Fed interest rates may influence the correlation between cryptocurrencies and traditional financial markets, altering the risk-return profile of crypto holdings.
Changes in interest rates impact cryptocurrency prices through shifts in investor behavior and market dynamics.
The United States Federal Reserve, or the Fed, acts as the central bank of the United States. One of its key responsibilities is to manage the country’s interest rates, which essentially control the cost of borrowing money. A lower interest rate makes borrowing cheaper, increases economic liquidity and stimulates consumer spending and investment. Conversely, raising interest rates discourages borrowing, reduces the amount of money flow within the economy and slows the economy down, which aims to curb inflation.
