Raising of interest rate is usually because of the increase in demand for money and when this is done, an increase in the cost of credit is done which would affect so many companies and individuals, especially commercial banks. When an interest rate is raised, so will the commercial banks raise their interest on their services because they also have a target that has to be met which is set by the regulators.
The services usually affected when the interest rate is raised by commercial banks are usually their loan services, when this is done, applying for loans because of the high interest added will become very difficult and another problem will emerge, which is a low circulation of money and when there’s low circulation, there will be low economic activity. When this happens, consumers or purchasers of goods will however choose to cancel their purchase and request a refund of cash. This activity is known as a cooling-off period.
So in a general sense, when raising interest rate is done, it doesn’t just affect commercial banks but also services that require money, which also includes stocks, and bonds and which will also slide into the crypto market affecting the prices.
First of all, what we should know is cryptocurrencies and other digital assets are risk-on investments and when there’s an interest hike to balance the inflation which may lead to low circulation of money, it will also find its way to the risk-on investments because they are the riskier type of investments, like the cryptocurrencies and NFTs, affecting the market prices. Compared to the risk on investments, the risk-off investments like gold and other currencies are considered safer types of investments during times like this.
The result of the interest rate sliding into the crypto market is what Celsius Network is currently facing and from different articles, you will also see reports of Bitcoin land Ethereum down by over 70% since when they both hit their ATH in November last year.
