Federal Interest Rate Hike Might Hurt Bitcoin


ForexMinute.com — Bitcoin company itBit has speculated a fall in the digital currency’s value in next few months.

According to the company’s Director of Trading, Bobby Cho, there could be a strong relativity between the Bitcoin’s value and an upcoming economical event, where Federal Open Market Committee (FOMC) might raise the benchmark interest rate by 0.50-0.75%. The FOMC meeting is scheduled to take place this week.

“The latest dot plot released in the FOMC’s summary of economic projections in June indicates that every member expects the benchmark rate to increase to 0.50%-to-0.75% by year’s end,” Cho stated. “And in 2016 and beyond, the expectation is for rates to ultimately settle between 3%-4.5%.”

He added: “Shorter-term rates have already begun to tick up in anticipation of a 2015 rate hike. With a rate increase all but imminent, investors are bracing for change — including those with a stake in Bitcoin. And the digital currency may take a hit.”

The concept proposed by Cho, however, is solely based on the inverse relationship between the US Dollar and Bitcoin. Speculations are that that US Dollar will emerge stronger and more stable after the rate hike is announced. This could influence investors to redirect their investments into the US stocks, rather than into the “speculative” assets like Bitcoin.

Bitcoin Remains Attractive

While Cho believed that the demand of Bitcoin in the US will decrease, he expected a complete opposite scenario when it comes to eastern markets. In his opinion, the constant devaluation of Chinese Renminbi has highlighted Bitcoin as a viable investment alternative for the people. He stated:

“If more countries follow China’s lead and enact competitive currency devaluations, Bitcoin should see increased demand. Citizens of these nations could use bitcoin as a store of value free from government manipulation and as means to transfer wealth out of the country into other asset classes.”