Will higher interest rates take a bite out of the Bitcoin price in 2022?


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the Bitcoin (CRYPTO: BTC) the price is down 2.7% in the last 24 hours and is currently trading at $40,810 US (56,915 Australian dollars).

That leaves Bitcoin up 7.3% since this time last week and down 14.4% year-to-date.

Ethereal (CRYPTO: ETH)the number 2 crypto in the world by market cap, is also losing ground today. The price of Ethereum is down 3.1% to $2,838. Ethereum is still up 12.5% ​​in 7 days, while the price is down 24.6% since January 1.

The price of Bitcoin and that of most major cryptocurrencies (outside of stablecoins) have followed a similar trajectory to risky assets like ASX tech stocks this year.

And with the specter of multiple interest rate hikes now looming over the next year, the S&P/ASX All Technology Index (ASX:XTX) is down 17.9% year-to-date.

Which brings us back to…

Will inflation take a bite out of Bitcoin price in 2022?

It is not inflation, so much, that could create headwinds for any potential Bitcoin price gains in 2022. But rather higher interest rates on cards to keep inflation in check.

Addressing the tough macro conditions facing crypto investors, Marcus Sotirou, an analyst at digital asset broker GlobalBlock, said (quoted by Bloomberg): “Bitcoin is consolidating below $41,000 as the percentage of long-term holders in the market continues to rise. But by 2022, I an aggressive price rally cannot be expecteddue to macro conditions.

Wilfred Daye, head of Securitize Capital, added: “For Bitcoin to break, the key ingredients are a tech rally and macroeconomic risk sentiment.”

When asked about the impact of higher fees on the price of Bitcoin and other cryptos, Josh Gilbert, a crypto analyst at multi-asset trading platform eToro, told The Motley Fool:

While rate increases generally equate to lower investor appetite for riskier assets like cryptocurrencies, they are unlikely to change the long-term picture of the asset. It is expected that we will continue to see a period of consolidation with cryptocurrencies, whenever geopolitical tensions arise. In the event that it eases, a crypto relief rally is anticipated to occur.

Gilbert noted that Ethereum and Bitcoin are likely to do better in a rising interest rate environment than some of the lesser-known altcoins.

Altcoins will be more susceptible to investors leaving cryptocurrencies as they tend to carry more risk than larger capped crypto assets such as Bitcoin and Ethereum. This is because crypto assets with a larger cap are more established and their use cases for the everyday investor are much clearer, as evidenced by their surge in recent months.