Crypto’s Resurgence: Defying High Interest Rates

Crypto’s Resurgence: Defying High Interest Rates

Bitcoin is in a prolonged rebound to levels last seen when interest rates were near zero and pixelated artwork was regularly selling for millions.

On Monday, bitcoin spiked by more than 5% to breach $66,000 for the first time in nearly three years. It’s within reach of its all-time high of $69,000. Ether, solana, dogecoin, and other tokens are also staging rallies. In February, the value of the cryptocurrency market returned to $2 trillion for the first time since April 2022.

This retesting of highs comes against the headwinds of interest rates potentially remaining higher for longer. Markets have pushed back their rate-cut forecasts as inflation persists and the economy shows little sign of weakening.

The last time around, the rally was driven by low-interest rates that encouraged speculative behavior. When the Federal Reserve started hiking rates to curtail high inflation, the momentum ran out, and Bitcoin plunged to $16,000 less than a year after hitting records.

Now cryptocurrencies are climbing with rates still elevated and without a clear path lower.

What gives?

“Even though Fed rate-cut expectations have been pushed back, the threat of rate hikes is off the table for now,” Blue Chip Daily’s chief technical strategist, Larry Tentarelli, told Business Insider, adding, “So bitcoin has been rallying.”

There’s also a supply-demand imbalance that appears to be outweighing policy concerns.

A slate of bitcoin-ETF approvals has fueled demand and retail interest, while markets are bracing for the bitcoin halving event that will lower the reward for miners and cut the volume issued daily in half.

Halving happens once about every four years, with occurrences in 2020, 2016, and 2012. In the 12 months after the previous three halvings, bitcoin climbed by 8,069%, 284%, and 559%. The event puts pressure on supply as it slows the rate at which new bitcoins enter the market, and this year’s halving will come at a time when demand is sharply rising.

Tentarelli and other market pros have pointed to the emergence of bitcoin ETFs as a “tremendous” driver of crypto demand, as the products allow more investors to gain exposure without buying tokens outright.

CoinShares data released Monday indicates that last week digital investment products saw the second-biggest weekly inflows on record, at $1.84 billion. Ninety-four percent of those inflows moved into bitcoin products. Trading volumes in the investment products hit a record of more than $30 billion in the same stretch.

ETFs from the likes of Wall Street titans like BlackRock and Fidelity invest directly in bitcoin and are snapping up more and more of the available supply.

A report from CoinDesk in February, the month after the ETF approvals, said the 11 funds owned 192,000 bitcoins. That figure is separate from the 420,000 owned by Grayscale, which converted its bitcoin trust into an ETF, and from the nearly 200,000 owned by MicroStrategy.

Standard Chartered has predicted that ETF inflows could help push bitcoin’s price to $200,000. Fundstrat’s Tom Lee holds an even more bullish prediction, saying the crypto could reach $500,000.

“There’s a finite supply and now we have a potentially huge increase in demand” with spot bitcoin ETF approval, Lee said in a recent interview, “so I think in five years something around half a million would be potentially achievable.”

Cryptocurrency, once ‌considered a risky and speculative investment, has⁤ experienced ⁣a resurgence ​in recent ⁣years. With the instability of traditional financial systems, more and more people are turning to ‌cryptocurrencies as a‌ decentralized and secure alternative. But one of the biggest​ draws ⁣of crypto is its ability to defy high interest rates, offering a more ⁢attractive⁤ option for both borrowers and investors. In this article, we will ⁢dive into the world of crypto and⁢ explore how it is challenging the ‌high interest⁢ rates of traditional banking systems.

Understanding ​Interest Rates:

Before we delve into the world of crypto, ​let’s‌ first understand what interest rates are and why they​ play a⁤ significant role ​in the⁢ financial world.​ An ⁢interest ⁢rate is the amount charged ‍by‌ a ⁣lender to a borrower for the use⁤ of their money. ⁢It⁤ is essentially the cost of borrowing money. When an economy is stable, central banks usually set low-interest ⁤rates to encourage borrowing and spending, which in turn⁤ stimulates economic growth. However, in times of ⁣economic ⁤turmoil, interest ⁤rates tend to rise, making it more expensive ⁢for borrowers⁣ to access credit.

Why High-Interest⁣ Rates are a Problem:

High-interest rates can have a detrimental effect on both borrowers and investors. For ​borrowers, it means ​their loans and credit card balances will accumulate more⁣ interest, making it difficult‌ to pay off their debt. This can lead to ⁢increased financial stress and even ​bankruptcy. On the other hand, high-interest rates ⁢make⁤ it less attractive for investors‍ to put money into ‍savings ⁤accounts,⁣ bonds,​ or other investment products. They​ receive⁣ less return on their investment, and their money ⁢may ⁢not even keep up ‍with inflation rates. This can ⁤discourage people⁣ from saving, thereby‌ hindering⁢ economic growth.

How⁣ Crypto ⁢Defies ⁤High ⁤Interest​ Rates:

One of the major ways cryptocurrency is defying high interest rates‍ is through decentralized lending platforms. ‍These platforms connect borrowers⁢ directly with lenders, eliminating the ⁢need for intermediaries such as banks. As a result, interest rates are set ‌by the marketplace, not by a⁤ central ⁣authority. This⁣ means that ⁢when the traditional banking system raises interest rates, cryptocurrency lending platforms may not necessarily follow ‍suit.

Another way crypto ‍defies high-interest rates is through its stablecoin products. Stablecoins are cryptocurrencies pegged to a fiat currency, such as ‌the ‌US ‍dollar, to maintain a stable value. This makes them a more attractive option for both borrowers ‌and investors. Borrowers can obtain loans denominated in ⁤stablecoins,⁢ which have ⁣lower ⁣interest rates ​compared to ‌traditional fiat⁤ currency loans. On the other hand, investors can earn higher interest rates by lending‍ out their stablecoins on decentralized platforms.

Benefits of Crypto’s Resurgence:

The resurgence ⁣of crypto has brought about several benefits for​ both ‍borrowers and investors. One‍ of the most significant advantages is the accessibility and convenience‍ it offers. Traditional banks have ⁤strict rules and⁢ regulations​ when it comes ‌to ‍lending money, making ​it‍ difficult for some individuals to access credit. With decentralized lending platforms, borrowers have‌ the ‍opportunity to obtain loans with more flexible terms and lower interest rates.

For investors, crypto presents a unique ​opportunity ⁣to diversify ​their portfolio and potentially earn higher returns. ⁢With traditional investment ⁤options offering meager interest rates, ‍investing in⁣ crypto can be a lucrative alternative. Furthermore, the⁢ decentralization⁤ of crypto means that governments and central authorities do not have⁤ control over its value, making it less susceptible to inflation ⁣and ⁤economic‌ uncertainty.

Practical Tips for Borrowers and Investors:

For those ⁤interested ⁢in taking ‍advantage of⁣ crypto’s⁢ defiance⁤ of high-interest rates, there are⁤ a few practical tips to keep in mind.​ For⁤ borrowers, it is crucial ‌to do your ⁣research and‌ carefully read the terms‌ and conditions ‌before taking⁣ out a‌ crypto loan. You should ‍also be ⁣aware of the volatility of⁤ cryptocurrency⁢ and have a plan in place to ⁢manage ‍potential‌ price fluctuations.

For investors, it is essential to diversify your portfolio⁣ and not ‌put all ‍your money into crypto alone. Additionally, be mindful of the platform you choose to invest with and ensure they have proper security measures in place‌ to protect your funds.

Real-Life Examples:

The concept of crypto ⁢challenging high-interest rates is not just theoretical; there are real-life examples of ‌its⁣ success.⁢ One such ⁣example is the rise of ‌DeFi (Decentralized Finance). DeFi allows ⁢crypto ⁤holders to earn interest by lending out their ⁤assets ​through decentralized platforms. As ​a ‌result, DeFi is ​challenging traditional banking systems​ by providing ​individuals with‍ more control over their ‍finances and offering better interest rates.

In another example, the country of Venezuela, which has been struggling with high inflation rates, has seen an increase in‌ the use of ⁣cryptocurrencies as a way ⁤to protect savings from ​devaluation. This further highlights how crypto can be a viable solution to high-interest rates and economic instability.

In conclusion, cryptocurrency’s resurgence is defying high-interest‌ rates and providing individuals with⁣ alternative‌ options for ⁤borrowing and ‍investing. With the rise of decentralized lending platforms and stablecoins,⁣ borrowers can‍ access‌ credit at lower rates, ‍while investors have⁤ the potential to earn higher returns. As crypto continues ⁢to evolve and gain more widespread‍ adoption, it is clear that it has the potential to challenge traditional financial systems and offer⁤ a‍ more inclusive‍ and​ secure financial landscape. So,‍ it’s time to consider diving into the ‍world of ⁢crypto and exploring its potential benefits ‌for yourself.

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