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


a mysterious person wearing a black hoodie points a finger to a vast illuminated graph tracking bitcoin value with bitcoin symbols floating above the chart.

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The Bitcoin (CRYPTO: BTC) price is down 2.7% over the past 24 hours, currently trading for US$40,810 (AU$56,915).

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

Ethereum (CRYPTO: ETH), the world’s number 2 crypto by market cap, is losing ground today too. The Ethereum price is down 3.1% to US$2,838. Ethereum is still up 12.5% over 7 days, while the price is down 24.6% since 1 January.

The Bitcoin price and that of most major cryptos (outside the stablecoins) have followed a similar trajectory to risk-assets like ASX tech shares, this year.

And with the spectre of multiple interest rate rises now looming over the coming year, the S&P/ASX All Technology Index (ASX: XTX) has lost 17.9% year-to-date.

Which brings us back to…

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

It’s not inflation, so much, that might throw up headwinds for any potential gains in the Bitcoin price in 2022. But rather the higher interest rates on the cards to keep inflation in check.

Addressing the difficult macro conditions facing crypto investors, Marcus Sotirou, analyst at digital asset broker GlobalBlock, said (quoted by Bloomberg), “Bitcoin is consolidating under $41,000 as the percentage of long-term holders in the market continues to increase. But for 2022, I can’t expect an aggressive uptick in prices, because of the macro conditions.”

Wilfred Daye, head of Securitize Capital, added, “For Bitcoin to breakout, a tech rally and macro risk-on sentiment are the key ingredients.”

Asked about the impact of higher rates on the Bitcoin price and other cryptos, Josh Gilbert, crypto analyst at multi-asset investment platform eToro told The Motley Fool:

While rate hikes generally equate to a lower investor appetite for higher risk assets like crypto, it’s unlikely to change the long-term picture for the asset.  It’s expected that we will continue to see a period of consolidation with crypto, as long as geopolitical tensions ensue. In the situation that they do ease, a crypto relief rally is anticipated to occur.

Gilbert noted that the Ethereum and Bitcoin price are likely to perform better under an environment of increasing interest rates than some of the lesser-known altcoins.

Altcoins will be more susceptible to investors rotating out of crypto, as they tend to carry more risk than the larger capped crypto assets such as Bitcoin and Ethereum. This is because larger capped crypto assets are more established and their use cases to the everyday investor are much clearer as shown by their rise in recent months.



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