Following the collapse of Silicon Valley Bank, investors are optimistic that the Federal Reserve will take a softer approach to raising interest rates, potentially benefiting the cryptocurrency industry that has been hit hard by the economic downturn. The Fed has adopted a more aggressive approach to controlling inflation and raised interest rates from near zero in March 2022. Now, with interest rates ranging between 4.50% and 4.75%, and the US banking sector facing issues, the chances of the Fed raising rates further have reduced.
As a result, investors have become more optimistic about cryptocurrencies as interest rates make riskier assets like stocks and crypto less attractive when compared to safer options like US Treasury Bills. If the Fed’s monetary policy changes, investors may allocate more money to risk assets, benefiting crypto markets. The likelihood of the Fed raising interest rates by 50 basis points has decreased significantly, falling from 40% on Friday to 0% and pushing the probability that the Fed will pause interest rate hikes to 34%.
Cryptocurrency prices have risen as a result of this recalibration of interest rate expectations, with Bitcoin surging 13.5% to around $24,280 and Ethereum rising 8.1% to just over $1,680. However, regulatory headwinds and fears of contagion from the collapse of Silicon Valley Bank still present significant challenges for the cryptocurrency industry.
