What impact does the ECB rate hike have on cryptocurrencies?
For the ECB, this is the first case in 11 years. The first, which marks the end of the era of negative rates that began in 2014. But as a result of the Fed’s actions, this rate hike has become almost mandatory for the European Union.
While the consensus seemed to suggest a 25 basis point hike, the ECB raised three key rates by 50 basis points. Thus, the deposit rate is reduced to zero, and the interest rate on the main refinancing operations is increased to 0.5%. The margin credit line was increased to 0.75%.
As on the other side of the Atlantic, the central bank’s goal is the same: fighting inflation. Inflation reached 8.6% in June this year and may continue to rise in the coming months. At least, that’s what Christine Lagarde thinks, who expects inflation to be quite high for several months. The ECB President also notes that the pressure on prices is now having an impact on many sectors. According to her, the weakness of the single currency also plays a role in inflationary pressure in the eurozone.
Copy and paste of US monetary policy?
Big problems require big solutions. And at the moment it is obvious that the old continent and Uncle Sam’s country are subject to the same inflationary pressure. 8.6% in Europe and 9.1% in the USA, according to the latest published data.
However, in the US, the policy of raising interest rates began much earlier, in March. For many weeks, Europe has been hiding behind the idea of transient inflation. Now she has no choice. On the other side of the Atlantic, a 75 basis point rate hike is expected at the next meeting at the end of the month.
While the Fed seems to be leading the way, other countries are not following this trend. This is especially true for Japan, which has a very soft monetary policy, despite the fact that the country may suffer from high inflation.
What is the impact on digital assets?
Since the Fed began to pursue a policy of raising rates, the consequences of this have been felt in the cryptocurrency market. But in a broader sense — in risky markets such as stocks.
Today it seems that the crypto markets have “caught” and integrated this dynamic of rate increases. But in order not to shock the market too much, it is now important that the rate hike is not too sharp.
To date, according to the data provided by Coinmarketrate.com , the cryptocurrency market has declined by 4.94%, and its total market capitalization is slightly more than $ 1 trillion. The price of Bitcoin has also decreased by the same amount. This may be due to Tesla’s announcement of the sale of 75% of Bitcoin in the second quarter, as well as, inevitably, with the ECB’s policy of raising the rate.
The reaction time of the European authorities may raise doubts about the rapid increase in rates in Europe. This could prove to be a disruptive factor for risk markets.